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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the transition period from ____ to ____
Commission File
Number 0-29604
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EnergySouth, Inc.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Alabama 58-2358943
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (334) 450-4774
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($.01 par value)
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(Title of Class)
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The aggregate market value of Common Stock, Par Value $.01 per share, held
by non-affiliates (based upon the average of the high and low prices as reported
by NASDAQ on December 16, 1999) was approximately $101,489,409.
As of December 16, 1999, there were 4,898,433 shares of Common Stock, Par
Value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on January 28, 2000 are incorporated by reference into Part III.
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PART I
Item 1. Business.
GENERAL
EnergySouth, Inc. (together with its subsidiaries, the "Company" or
"Registrant", and exclusive of its subsidiaries, "EnergySouth") was initially
incorporated under the laws of the State of Alabama on September 5, 1997 for the
primary purpose of becoming the holding company for Mobile Gas Service
Corporation ("Mobile Gas"), a natural gas utility, and its subsidiaries.
Effective February 2, 1998, Mobile Gas and its subsidiaries were reorganized
(the "Reorganization") into the holding company structure whereby Mobile Gas
became a wholly-owned subsidiary of EnergySouth.
Mobile Gas was incorporated under the laws of the State of Alabama in 1933.
Mobile Gas is engaged in the purchase, distribution, sale and transportation of
natural gas to over 100,000 residential, commercial and industrial customers in
Southwest Alabama, including the City of Mobile and adjacent areas. Mobile Gas'
service territory covers approximately 300 square miles. Mobile Gas is also
involved in merchandise sales, specifically sales of natural gas appliances.
EnergySouth Services, Inc. ("Services") was incorporated in March 1983.
Through Services, the Company provides contract and consulting work for
utilities and industrial customers. Services owns a 51% interest in Southern Gas
Transmission Company ("SGT"), an Alabama general partnership which was formed in
November 1991. SGT was established to provide transportation services to the
facilities of Alabama River Pulp Company, Inc. During fiscal year 1992, SGT
constructed and began operating a 50-mile pipeline from the facilities of Koch
Gateway Pipeline Company ("Koch"), formerly United Gas Pipe Line Company, near
Flomaton, Alabama to the facilities of Alabama River Pulp Company, Inc. in
Claiborne, Alabama.
MGS Marketing Services, Inc. ("Marketing") was incorporated on March 5,
1993 to assist existing and potential customers in the purchase of natural gas.
In connection with the Reorganization, Services and Marketing became
wholly-owned subsidiaries of EnergySouth during fiscal year 1998.
MGS Storage Services, Inc. ("Storage"), a wholly-owned subsidiary of Mobile
Gas, was incorporated on December 4, 1991. Storage holds a general partnership
interest of 87 1/2% in Bay Gas Storage Company, Ltd. ("Bay Gas"), an Alabama
limited partnership, and a 12 1/2% limited partnership interest is held by Olin
Corporation. Bay Gas constructed an underground gas storage cavern and related
pipeline facilities which are used to provide storage and delivery of natural
gas for Mobile Gas and other customers.
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BUSINESS SEGMENTS
The Company's operations are classified into the following business
segments:
o Natural Gas Distribution - The Natural Gas Distribution segment is actively
engaged in the distribution and transportation of natural gas to
residential, commercial and industrial customers in Southwest Alabama
through Mobile Gas and SGT.
o Natural Gas Storage - The Natural Gas Storage segment provides for the
underground storage of natural gas and transportation services through the
operations of Bay Gas and Storage. The storage operations are located in
Southwest Alabama.
o Other - Includes marketing, merchandising, and other energy-related
services which are provided through Marketing, Mobile Gas, and Services,
respectively, and are aggregated with the corporate operations of
EnergySouth, the holding company.
For financial information by business segment, including revenues by
segment, for the fiscal years ended September 30, 1999, 1998, and 1997, please
see Note 10 to the Consolidated Financial Statements on pages F-22 and F-23.
CUSTOMERS
Of the approximately 100,000 customers of the Company, approximately 95%
are residential customers. In the fiscal year ended September 30, 1999,
approximately 62% of the Company's gas revenues were derived from residential
sales, 13% from small commercial and industrial sales, 8% from large commercial
and industrial sales, 13% from transportation services, and 4% from storage and
miscellaneous services. Residential sales in 1999 accounted for approximately 9%
of the total volume of gas delivered to the Company's customers, with small
commercial and industrial, large commercial and industrial, and transportation
deliveries accounting for approximately 3%, 3% and 85%, respectively. The ten
largest customers of the Company accounted for approximately 14% of the
Company's gross margin in fiscal 1999, with the largest accounting for
approximately 3%. Gross margin is defined here as Gas Revenue less Cost of Gas,
as shown on the Consolidated Statements of Income at page F-3. For further
information with respect to revenues from and deliveries to the various
categories of the Company's customers, see Item 6, "Selected Financial Data".
EnergySouth is located at the crossroads of the expanding offshore natural
gas production areas of the central gulf coast and the developing gas-fired
electric generation markets in the lower southeast. Bay Gas has already begun
providing transportation services to two new gas-fired electric generating
facilities and has contracted to provide transportation services to another that
is presently under construction. Mobile Gas has also contracted to provide
transportation services to two planned electric generating facilities. During
1999 Bay Gas also entered into storage contracts with electric companies which
fully subscribed the remaining space in its storage cavern. In addition to the
developing local electric generation market for transportation and storage
services, Florida utilities are projected to add in excess of 10,000 megawatts
of gas fueled power generation in the next decade. Management believes that Bay
Gas, with the construction of additional caverns, is well positioned to serve
the storage needs of that market.
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GAS SUPPLY
The Company is directly connected to three natural gas processing plants in
south Mobile County. Mobile Gas has contracted for a portion of its firm supply
directly with these producers. For the fiscal year ended September 30, 1999, the
Company obtained approximately 82% of its gas supply from sources located in the
Mobile Bay area, with the balance being obtained from interstate sources.
Mobile Gas has a current peak day firm requirement of 127,000 MMBtus. Firm
supply needs of 80,000 MMBtu/day are expected to be met through the withdrawal
of gas from the storage facility owned by Bay Gas. The Company also has firm
supply contracts with gas suppliers for 10,000 MMBtu/day until October 31, 2000,
and 13,000 MMBtu/day until June 30, 2000, through the direct connections with
Mobil and Shell's processing plants. Additionally, the Company has contracted
for firm transportation and storage service ("No-Notice Service") for 24,000
MMBtu/day from Koch under an agreement effective through March 31, 2002.
GAS STORAGE
Construction of the Bay Gas storage facility was completed in 1994. At
September 30, 1999, the cavern had the capacity to hold up to 3.2 BCF of natural
gas. Approximately 1.1 BCF of the gas injected into the storage cavern, called
"base gas," remains in the cavern to provide sufficient pressure to maintain
cavern integrity, and the remainder, approximately 2.1 BCF, represents working
storage capacity. Bay Gas has pipeline interconnects with Florida Gas
Transmission and Koch which provide access to interstate markets.
In 1994 Mobile Gas entered into a gas storage agreement with Bay Gas under
which Bay Gas agreed to provide storage of approximately one-third of the
working storage capacity for an initial period of 20 years. Under the Mobile Gas
storage contract, injection and withdrawal capacity of 15,000 MMBtu/day and
80,000 MMBtu/day, respectively, is committed to Mobile Gas. At September 30,
1999, the storage facility's injection capacity ranged from 35,000 to 50,000
MMBtu/day depending upon cavern pressure and the withdrawal capacity was 260,000
MMBtu/day.
Under its agreements with Olin, Bay Gas has notified Olin of its intent to
develop a second cavern on the property leased from Olin. Until Bay Gas makes
certain required payments to Olin prior to commencement of the construction of a
second cavern, Olin has the right to increase its ownership interest in Bay Gas
by an additional 12 1/2%, by purchasing from Storage such additional percentage
at a price based on the book equity of Storage in Bay Gas. During fiscal 1999,
Bay Gas entered into long-term storage contracts that have fully subscribed the
capacity of its existing underground gas storage cavern. With the first cavern
fully contracted and a growing market for storage services, Bay Gas announced on
July 2, 1999 plans to develop a second underground storage facility. The second
cavern is projected to cost approximately $35,000,000 and is targeted for
completion in late 2001.
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COMPETITION
Gas Distribution Competition. The Company is not in significant direct
competition with respect to the retail distribution of natural gas to
residential, small commercial and small industrial customers within its service
area. Electricity competes with natural gas for such uses as cooking, water
heating and space heating.
The Company's large commercial and industrial customers with requirements
of 200 MMBtu per day or more have the right to contract with the Company to
transport customer-owned gas while other commercial and industrial customers buy
natural gas from the Company. Some industrial customers have the capability to
use either fuel oil, coal, wood chips or natural gas, and choose their fuel
depending upon a number of factors, including the availability and price of such
fuels. In recent years, the Company has had adequate supplies so that
interruptible industrial customers that are capable of using alternative fuels
have not had supplies curtailed, and the price of natural gas has remained at
levels such that, in most cases, these industrial customers have chosen to use
natural gas rather than other fuels. The Company's rate tariffs include a
competitive fuel clause which allows the Company to adjust its rates to certain
large commercial and industrial customers in order to compete with alternative
energy sources. However, there can be no assurance that the current competitive
advantage of natural gas over alternative fuels will continue. See "Rates and
Regulation."
Due to the close proximity of various pipelines and gas processing plants
to the Company's service area, there exists the possibility that current or
prospective customers could install their own facilities and connect directly to
a supply source and thereby "bypass" the Company's service. The Company believes
that because it has worked closely with major industrial customers to meet those
customers' needs, and because of its ability to provide competitive pricing
under its rate tariffs, none of the Company's customers have bypassed its
facilities to date. Although there can be no assurance as to future
developments, the Company intends to continue its efforts to reduce the
likelihood of bypass by offering competitive rates and services to such
customers.
Gas Storage Competition. A number of types of competitors may provide
services like or in competition with those of Bay Gas. These include, among
others, natural gas storage facilities, natural gas aggregators, and natural gas
pipelines. Bay Gas believes that its strategic geographic location and its
ability to charge market-based rates for interstate storage services will enable
it to effectively compete with such competitors. See "Rates and Regulation."
RATES AND REGULATION
The natural gas distribution operations of Mobile Gas are under the
jurisdiction of the Alabama Public Service Commission ("APSC"). The APSC
approves rates which are intended to permit the recovery of the cost of service
including a return on investment. Rates are determined by reference to rate
tariffs approved by the APSC in traditional rate proceedings or, for certain
large customers, on a case-by-case basis. In addition, pursuant to APSC order,
rates for a limited number of large industrial customers are determined on a
privately negotiated basis. Beginning December 1, 1995, Mobile Gas also is
allowed to recover costs associated with its replacement of cast iron mains.
This component of rates is adjusted annually through a filing with the APSC. The
rates for service rendered by Mobile Gas are on
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file with the APSC. The APSC also approves the issuance of debt and equity
securities and has supervision and regulatory authority over service, equipment,
accounting, and other matters.
On June 10, 1996, the APSC authorized Mobile Gas to apply a temperature
rate adjustment to customers' gas bills for the months of November through
April. The temperature rate adjustment helps to level out the effects of
temperature extremes on Company earnings by reducing high gas bills to customers
in colder than normal weather and increasing gas revenues received by the
Company in warmer than normal weather. The temperature rate adjustment has been
reflected in customers' gas bills during the months of November through April
since November 1, 1996.
The Mobile Gas tariffs include a purchased gas adjustment clause which
allows it to pass on to certain of its customers increases or decreases in gas
costs from those reflected in its tariff charges. Adjustments under such clauses
require periodic filings with the APSC but do not require a general rate
proceeding. Under the purchased gas adjustment clause, Mobile Gas has a
competitive fuel clause which gives it the right to adjust its rates to certain
large customers in order to compete with alternative energy sources. Any margin
lost as a result of competitive fuel clause adjustments is recoverable from its
other customers.
Gas deliveries to certain industrial customers are subject to regulation by
the APSC through contract approval. The operations of SGT, which consist only of
intrastate transportation of gas, are also regulated by the APSC.
Bay Gas is a regulated utility governed under the jurisdiction of the APSC.
As a regulated utility, Bay Gas' intrastate storage contracts are subject to
APSC approval. Operation of the storage cavern and well-head equipment are
subject to regulation by the Oil and Gas Board of the State of Alabama. Bay Gas
is allowed by Federal Energy Regulatory Commission ("FERC") order to charge
market-based rates for interstate storage services. Market-based rates allow Bay
Gas to respond to market conditions and minimizes regulatory involvement in the
setting of its rates for storage services. Bay Gas filed a petition with the
FERC on November 5, 1998 seeking authority to provide transportation-only
services for both interstate and intrastate shippers. The FERC issued an order
on April 28, 1999 granting authority to Bay Gas to provide transportation-only
services to interstate and intrastate shippers and approved rates for such
services.
Mobile Gas has been granted nonexclusive franchises to construct, maintain
and operate a natural gas distribution system in the areas in which it operates.
Except for the franchise granted by Mobile County, Alabama, which has no stated
expiration date, the franchises have expiration dates, the earliest of which is
in 2007. The Company has no reason to believe that the franchises will not be
renewed upon expiration.
SEASONAL NATURE OF BUSINESS
The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period have historically reflected, in addition to other matters, the impact of
weather, with colder temperatures resulting in increased sales by the Company.
The substantial impact of this sensitivity to seasonal conditions has been
reflected in the Company's results of operations. As discussed above under
"Rates and
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Regulation" and below under "Management's Discussion and Analysis of Results of
Operations and Financial Condition" the application of a temperature rate
adjustment in customers' bills beginning in November 1996 has helped to level
out the effects of temperature extremes on results of operations.
Due to the seasonality of the Company's business, the generation of working
capital is impaired during the summer months because of reduced gas sales. Cash
needs during this period are met generally through short-term financing
arrangements or the reduction of temporary investments as is common in the
industry.
ENVIRONMENTAL ISSUES
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread availability
of natural gas, Mobile Gas manufactured gas for sale to its customers. In
contrast to some other companies which operated multiple manufactured gas
plants, Mobile Gas and its predecessor operated only one such plant, which
discontinued operations in 1933. The process for manufacturing gas produced
by-products and residuals, such as coal tar, and certain remnants of these
residuals are sometimes found at former gas manufacturing sites.
Mobile Gas conducted a preliminary assessment in 1994 of its former gas
plant site and has tested certain waters in the vicinity of the site. The
Company developed and has implemented a plan for the site based on the advice of
its environmental consultants, which involves securing and monitoring the site,
and continued testing. Based on the results of tests to date, the Company does
not believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has therefore established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.
EMPLOYEES
Mobile Gas employed 274 full-time employees as of September 30, 1999. Of
these, approximately 37% are represented by the Oil, Chemical and Atomic Workers
International Union, Local No. 3-541. As of September 30, 1999 Bay Gas employed
six full-time employees. The Company believes that it enjoys generally good
labor relations.
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Item 2. Properties.
The Company's properties consist of distribution, general, transmission,
and storage plant. The distribution plant is located in Mobile County, Alabama
and is used in the distribution of natural gas to the Company's customers. The
distribution plant consists primarily of mains, services, meters and regulating
equipment, all of which are adequate to serve the present customers. The
distribution plant is located on property which the Company is entitled to use
as a result of franchises granted by municipal corporations, or on easements or
rights-of-way.
The general plant consists of land, structures (with aggregate floor space
of approximately 118,000 square feet), office equipment, transportation
equipment and miscellaneous equipment, all located in Mobile County, Alabama.
The transmission plant consists of a pipeline of approximately 50 miles and
related surface equipment which is used in the transmission of natural gas by
SGT and is located primarily in Monroe County, Alabama. The transmission plant
is located on easements or rights-of-way.
The storage plant, consisting of an underground cavern for the storage of
natural gas and related pipeline and surface facilities, is located primarily in
Washington County, Alabama. The storage plant is constructed on a leasehold
estate with an initial term of 50 years, which will expire in 2040, and which
may be renewed at the Company's option for an additional term of 20 years.
Substantially all of the property of the Company is pledged as collateral
for the long-term debt.
Item 3. Legal Proceedings.
The Company is involved in litigation arising in the normal course of
business. Management believes that the ultimate resolution of such litigation
will not have a material adverse effect on the consolidated financial statements
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1999.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the proxy statement to be filed with the Securities and Exchange
Commission.
Information relating to executive officers who are also directors is
included under the caption "Election of Directors" contained in the Company's
definitive proxy statement with respect to its 2000 Annual Meeting of
Stockholders and is incorporated herein by reference.
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The following is a list of names and ages of all of the executive officers
who are not also directors or nominees for election as directors of the
Registrant indicating all positions and offices with the Registrant held by each
such person and each such person's principal occupations or employment during
the past five years. All such persons have been elected for terms expiring in
January 2000. Officers are appointed by the Board of Directors of the Company.
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Business Experience
Name, Age, and Position During Past 5 Years
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W. G. Coffeen, III, 53 Appointed in 1998
Vice President - Corporate Development and Planning -
EnergySouth, Inc.;
Vice President - Corporate Development and Planning - Mobile Gas; Appointed in 1998; Previously:
Director/Vice President - MGS Marketing Services, Inc.; Vice Vice President - Marketing, Mobile Gas Service
President - MGS Storage Services, Inc. Corporation (1986 - 1998)
Charles P. Huffman, 46 Appointed in 1998
Vice President, Chief Financial Officer, and Treasurer -
EnergySouth, Inc.
Vice President, Chief Financial Officer, Appointed in January 1995;
Treasurer, and Assistant Secretary - Mobile Gas Previously: Chief Financial Officer
Service Corporation; Vice President/Treasurer - (1993-1994)
EnergySouth Services, Inc.; Director/Vice
President/Treasurer - MGS Storage Services, Inc.;
Director/Vice President/
Treasurer - MGS Marketing Services, Inc.
G. Edgar Downing, Jr., 43* Appointed in 1998
Vice President, Secretary and General Counsel -
EnergySouth, Inc.;
Secretary, General Counsel and Vice President Appointed in 1998; Previously: Vice
of Administration -Mobile Gas Service President, Secretary and General
Corporation; Director/Vice President/Secretary - Counsel - Mobile Gas Service
EnergySouth Services, Inc.; Director/Vice Corporation (1994-1998)
President/Secretary - MGS Storage Services,
Inc.; Vice President/ Secretary - MGS
Marketing Services, Inc.
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* Mr. Downing is the son-in-law of Gaylord C. Lyon, a Director of the Company.
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PART II
Item 5. Market for the Registrant's Common Stock Equity and Related
Stockholder Matters.
As part of the Reorganization, effective February 2, 1998, shareholders of
Mobile Gas automatically became shareholders of EnergySouth with each two shares
of Mobile Gas common stock outstanding on that date being converted into three
shares of EnergySouth common stock. All per share amounts presented below have
been restated to reflect the three-for-two conversion.
The Registrant's Common Stock, $.01 par value, is traded on the NASDAQ-AMEX
National Market under the symbol "ENSI". As of December 16, 1999 there were
1,517 holders of record of the Company's Common Stock. Information regarding
Common Stock dividends and the bid price range for Common Stock during the
periods indicated is as follows:
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Per Share
Dividends Declared Closing Price Range
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Fiscal Year
Quarter Ended 1999 1998 1999 1998
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High Low High Low
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December 31 $.220 $.200 $23.625 $18.000 $27.250 $23.688
March 31 .220 .200 23.000 20.000 27.500 21.500
June 30 .235 .220 20.250 18.250 24.000 20.125
September 30 .235 .220 21.625 19.500 23.250 18.938
</TABLE>
Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
While the Board of Directors intends to continue the practice of paying
dividends quarterly, amounts and dates of such dividends as may be declared will
be dependent upon the Registrant's future earnings, financial requirements, and
other factors.
The Registrant's long-term debt instruments contain certain debt to equity
ratio requirements and restrictions on the payment of cash dividends and the
purchase of shares of its capital stock. None of these requirements are expected
to have a significant impact on the Registrant's ability to pay dividends in the
future.
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Item 6. Selected Financial Data.
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FINANCIAL SUMMARY
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Years Ended September 30, 1999 1998 1997 1996 1995
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SELECTED FINANCIAL DATA
(in thousands, except per share data)
Gas Revenues $ 63,889 $ 70,740 $ 69,622 $ 68,334 $ 56,204
Merchandise Sales 2,827 2,920 2,678 2,674 2,576
Other 1,344 1,329 1,281 1,224 788
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Total Operating Revenues $ 68,060 $ 74,989 $ 73,581 $ 72,232 $ 59,568
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Income Before Cumulative Effect of Changes in Accounting Principles $ 8,624 $ 8,417 $ 8,126 $ 8,631 $ 4,028
Total Cumulative Effect of Changes in Accounting Principles (349) - - - -
-----------------------------------------------------
Net Income $ 8,275 $ 8,417 $ 8,126 $ 8,631 $ 4,028
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Cash Dividends Per Share of Common Stock (1) $ 0.91 $ 0.84 $ 0.78 $ 0.74 $ 0.70
Basic Earnings Per Share of Common Stock (1):
Income Before Cumulative Effect of Changes in Accounting Principles (1) $ 1.77 $ 1.73 $ 1.68 $ 1.79 $ 0.84
Net Income (1) $ 1.70 $ 1.73 $ 1.68 $ 1.79 $ 0.84
Diluted Earnings Per Share of Common Stock (1):
Income Before Cumulative Effect of Changes in Accounting Principles (1) $ 1.75 $ 1.71 $ 1.66 $ 1.78 $ 0.84
Net Income (1) $ 1.68 $ 1.71 $ 1.66 $ 1.78 $ 0.84
Weighted Average Common Shares Outstanding (1):
Basic (1) 4,884 4,865 4,844 4,826 4,812
Diluted (1) 4,933 4,926 4,881 4,838 4,812
Total Assets $173,635 $166,541 $161,867 $150,779 $136,567
Long-Term Debt Obligations $ 58,017 $ 58,979 $ 63,580 $ 54,509 $ 57,328
STATISTICAL
Gas Revenue (in thousands):
Sales:
Residential $ 39,575 $ 44,725 $ 44,330 $ 43,929 $ 36,106
Commercial and Industrial - Small 8,613 9,208 8,948 8,348 6,813
Commercial and Industrial - Large 5,242 6,784 7,638 7,914 6,151
Transportation 8,215 8,210 6,886 6,571 6,172
Storage (other than intercompany) 1,689 1,204 1,176 926 245
Other 555 609 644 646 717
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Total $ 63,889 $ 70,740 $ 69,622 $ 68,334 $ 56,204
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Delivery to Customers (in thousand therms):
Gas Sales:
Residential 39,866 51,493 48,099 59,403 47,992
Commercial and Industrial - Small 11,781 13,231 12,338 14,148 11,669
Commercial and Industrial - Large 11,683 15,169 16,975 23,252 19,536
Transportation 357,183 335,905 284,248 279,798 274,859
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Total 420,513 415,798 361,660 376,601 354,056
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Customers Billed (peak month):
Residential 95,022 95,443 95,446 95,338 94,822
Commercial and Industrial - Small 5,282 5,305 5,267 5,257 5,235
Commercial and Industrial - Large 92 97 101 105 108
Transportation 37 30 30 30 29
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Total 100,433 100,875 100,844 100,730 100,194
-----------------------------------------------------
Degree Days (2) 1,196 1,889 1,487 2,030 1,331
NUMBER OF EMPLOYEES (END OF PERIOD) 280 281 276 276 275
</TABLE>
Note: (1) All references to number of shares and per share amounts have been
restated to reflect the three-for-two conversion of Mobile Gas common
stock into EnergySouth, Inc. common stock effective February 2, 1998.
Note: (2) The number of degrees that the daily mean temperature falls below 65
degrees F. The Company's rates were designed assuming annual normal
degree days of 1,640 beginning December 1, 1995 and an annual normal
of 1,695 for prior periods.
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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
THE COMPANY
The following discussion and analysis encompasses EnergySouth, Inc. and its
direct and indirect subsidiaries (collectively referred to as the "Company").
EnergySouth became the holding company for Mobile Gas Service Corporation
(Mobile Gas) on February 2, 1998, and at that time Mobile Gas became a
wholly-owned subsidiary. The Company, primarily through Mobile Gas, is engaged
principally in the distribution of natural gas to residential, commercial and
industrial customers in Southwest Alabama. Other Company subsidiaries are
engaged in providing gas pipeline transportation, gas storage, gas marketing and
other energy-related services. The Alabama Public Service Commission (APSC)
regulates the Company's gas distribution and storage operations. Mobile Gas'
rate tariffs for gas distribution allow a pass-through to customers of the cost
of gas supplies, certain taxes, and incremental costs associated with the
replacement of cast iron mains. These costs, therefore, have little impact on
the Company's earnings. Other costs, including a return on investment, are
recovered through rates approved in traditional rate proceedings. Interstate gas
storage contracts of Bay Gas Storage Company, Ltd. (Bay Gas) do not require APSC
approval since the Federal Energy Regulatory Commission (FERC), which has
jurisdiction over such contracts, allows them to have market-based rates.
Market-based rates minimize regulatory involvement in the setting of rates for
storage services and allow Bay Gas to respond to market conditions. The FERC
issued an order on April 28, 1999 granting authority to Bay Gas to provide
transportation-only services to interstate and intrastate shippers and approved
rates for such service.
The Company's distribution business is highly seasonal and
temperature-sensitive since residential and commercial customers use more gas
during colder weather for heating. As a result, the Company's operating results
in any given period historically have reflected, in addition to other matters,
the impact of weather, through either increased or decreased sales volumes. The
Company utilizes a temperature rate adjustment rider to mitigate the impact that
unusually cold or warm weather has on customer billings and operating margins by
reducing high gas bills in colder than normal weather and increasing gas
revenues in warmer than normal weather. Normal weather for the Company's service
territory is defined as the 30-year average temperature as determined by the
National Weather Service. In the gas utility industry, heating degree-days are
the benchmark for measuring coldness and represent the number of degrees that
the daily average temperature falls below 65 degrees Fahrenheit.
RESULTS OF OPERATIONS
NET INCOME
Net income before the cumulative effect of changes in accounting principles
for the fiscal years ended September 30, 1999, 1998 and 1997 was $8,624,000 or
$1.75 per share, $8,417,000 or $1.71 per share and $8,126,000 or $1.66 per
share, respectively. All references to earnings per share amounts are computed
on a diluted basis. During fiscal 1999 the Company changed its accounting for
unbilled revenues to be consistent with prevailing industry practice and changed
its accounting for start-up costs to comply with new
11
<PAGE> 13
accounting standards. In accordance with accounting rules, the amounts presented
for 1998 and 1997 have not been adjusted. Both accounting changes are discussed
in further detail within Note 1 to the Consolidated Financial Statements. The
cumulative effect on prior years of the accounting changes, reported as a
separate component of net income, decreased 1999 net income $349,000 ($0.07 per
share). Certain operating income components of current year net income were
impacted as a result of the accounting changes increasing net income $32,000
($0.01 per share). Assuming retroactive application of the accounting changes,
earnings per share amounts for fiscal 1999, 1998 and 1997 would have been $1.75,
$1.72 and $1.67, respectively. The increase in pro forma earnings for 1999
compared to 1998 is due primarily to increased revenues from gas storage
operations, decreased operations expenses and decreased interest expense. The
increase in earnings for 1998 compared to 1997 is due primarily to increased
margin on gas transportation revenues and decreased operations expenses.
OPERATING REVENUES
Gas revenues decreased $6,851,000 (10%) in 1999 compared to 1998. Included
within gas revenues for 1999 is the effect of accruing for unbilled gas revenues
at month-end while no such accrual is included within 1998 and 1997 since this
new accounting method was adopted in the first quarter of fiscal 1999. The
effect on gas revenues of the accounting change assuming retroactive application
is not materially different from amounts presented within the Consolidated
Statements of Income. Gas sales revenues to residential and commercial customers
decreased $5,743,000 (11%) due primarily to decreased gas sales volumes of 18%
resulting from weather in Mobile Gas' service area during the heating season
which was 37% warmer than prior year and 27% warmer than normal. The temperature
adjustment rider in rates mitigated the effect on earnings of weather to a large
degree; however, margins from customers whose usage is sensitive to weather were
down slightly from prior year. Margin is a term used to describe gas revenues
less related cost of gas. Revenues from temperature-sensitive customers were
also lower in 1999 compared to 1998 due to lower purchased gas costs passed
through to customers. Large commercial and industrial gas sales revenues
decreased $1,544,000 (23%) primarily due to warm weather, reduced rates related
to the pass-through of gas costs, and several customers changing from sales to
transportation agreements. Gas transportation revenues, excluding Bay Gas,
remained flat in 1999 compared to 1998. Revenues from natural gas storage and
transportation operations at Bay Gas increased $480,000 in 1999 compared to 1998
due primarily to transporting gas to a new electric co-generation plant that
began operations in 1999 and providing new storage services to a major electric
utility's new gas-fired electric generating facilities in the southeast. Bay Gas
has also contracted to transport gas beginning in 2000 to new gas-fired electric
generators located near the Bay Gas pipeline.
Gas revenues increased $1,118,000 (2%) in 1998 compared to 1997. Gas sales
revenues to residential and commercial customers increased $655,000 (1%) due to
a 7% increase in volumes resulting from weather which was 27% colder than prior
year and 15% colder than normal. Gas sales revenues in 1998 from residential and
commercial customers did not increase as much as expected considering the cold
weather since gas revenues were impacted negatively by a decrease in the
customer consumption per heating degree-day as compared to the historical
average. The decline in customer usage appears to be attributed to the
consistent moderate temperatures experienced throughout the fiscal 1998 heating
season even though temperatures were colder than normal in terms of degree-days.
12
<PAGE> 14
Additional margins from increased sales volumes attributed to colder weather
were more than offset by the operation of Mobile Gas' temperature adjustment
rider. Large commercial and industrial gas sales revenues decreased $854,000
(11%) primarily due to several customers changing from sales to transportation
agreements while gas transportation revenues increased $1,324,000 (19%) as a
result of this switch in addition to new transportation customers added to the
distribution system.
Merchandise sales revenues decreased $93,000 (3%) in 1999 compared to 1998
and increased $242,000 (9%) in 1998 compared to 1997. The fluctuation for both
years is due primarily to record level of appliances sold in 1998.
Other operating revenues is comprised primarily of interest income from the
financing of merchandise sales and installations that occur at the Company and
through trade programs and also includes revenues from non-utility jobbing work,
engineering consulting, operations training and gas marketing services. Other
operating revenues increased $15,000 (1%) in 1999 due primarily to increased gas
marketing revenues and increased $48,000 (4%) in 1998 due primarily to increased
financing income and gas marketing revenues.
OPERATING EXPENSES
Cost of gas decreased $6,713,000 (29%) in 1999 compared to 1998 due to
decreased gas sales volumes of 19% resulting from weather warmer than the prior
year and decreased average cost of gas per therm sold of 3%. Cost of gas
increased $1,001,000 (5%) in 1998 compared to 1997 due to increased gas sales
volumes of 3% and increased average cost of gas per therm sold of 2%. The
Company passes the actual cost of gas on to customers under the purchased gas
adjustment provision of rate tariffs. The difference between actual gas costs
and the amount collected from its customers is included as a current asset or
liability in the Consolidated Balance Sheets and excluded from the Consolidated
Statements of Income. Because cost of gas is completely recovered from the
Company's customers, fluctuations in the cost of gas have no effect on gas
margins.
Cost of merchandise decreased $24,000 (1%) in 1999 and increased $268,000
(13%) in 1998 due primarily to higher merchandise sales volumes in 1998.
Operations and maintenance expenses decreased $75,000 (0.4%) in 1999
compared to 1998 primarily due to cost control efforts, decreased advertising
and sales promotion expenses, and a lower provision for uncollectible gas
receivables resulting from decreased outstanding receivables due to the warm
weather in 1999. Operations and maintenance expenses decreased $907,000 (5%) in
1998 compared to 1997 primarily due to decreased retirement expenses resulting
from a higher return on plan assets, decreased provision for uncollectible
financed receivables, and decreased other utility expenses.
Increases in depreciation expense in 1999 and 1998 were due to increased
depreciable plant in service.
Taxes, other than income taxes (other taxes), primarily consist of property
taxes and business license taxes that are based on gross revenues and fluctuate
accordingly. Other taxes decreased $230,000 (4%) in 1999 compared to 1998 due
primarily to decreased license taxes resulting from lower revenues. This impact
was offset partially by increased
13
<PAGE> 15
property taxes resulting from the growth of plant in service. Other taxes
increased $323,000 (6%) in 1998 compared to 1997. During 1997, the Alabama
Department of Revenue approved the Company's claim for refund of a business
license tax that resulted in a reduction in other tax expense of $246,000.
OTHER INCOME AND EXPENSES
Interest expense decreased $319,000 (6%) in 1999 compared to 1998 primarily
as a result of decreased outstanding long-term debt caused partly by the early
redemption of $2,500,000 of 10.25% First Mortgage Bonds in October 1998. This
impact was offset partially by an increase in interest expense on short-term
debt due to increased average short-term debt outstanding during periods of
interim financing in 1999. Interest expense decreased $178,000 (3%) in 1998
compared to 1997 as a result of decreased outstanding long-term debt.
Allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Capitalized
interest costs decreased slightly in 1999 compared to 1998 due to lower
short-term interest rates applied in the computations and lower balances on
significant construction projects. Capitalized interest costs decreased $117,000
in 1998 compared to 1997 due to completion in August 1997 of a significant
construction project to service a large industrial customer.
Interest income decreased $4,000 in 1999 compared to 1998. Interest income
of $73,000 associated with income tax refunds was recorded in 1998 while there
is no such miscellaneous interest income in 1999. This impact in 1999 was offset
partially by increased interest income from short-term investments resulting
from higher average short-term investment balances. Interest income increased
$117,000 in 1998 compared to 1997 due to the interest income associated with
income tax refunds and increased income from short-term investments.
Minority interest reflects the minority partners' share of pre-tax earnings
of the Bay Gas and Southern Gas Transmission Company partnerships, of which
EnergySouth, Inc. subsidiaries hold controlling interests.
Income tax expense fluctuates with the changes in income before income
taxes. The Company's effective tax rate in 1999, 1998 and 1997 was 36.7%, 37.1%
and 36.7%, respectively. The components of income tax expense are reflected in
Note 4 to the Consolidated Financial Statements.
EFFECTS OF INFLATION
Inflation impacts the prices the Company must pay for labor and other goods
and services required for operation, maintenance and capital improvements.
Changes in purchased gas costs are passed through to customers in accordance
with the purchased gas adjustment provision of the Company's rate schedules.
Increases in other utility costs must be recovered through timely filings for
rate relief.
14
<PAGE> 16
GAS SUPPLY
A primary goal of the Company is to provide gas at the lowest possible cost
while maintaining a reliable long-term supply. To accomplish this goal the
Company has diversified its gas supply by constructing and purchasing pipelines
to access the vast gas reserves in our area, both offshore and onshore. The
Company has also contracted with certain of these sources for firm supply.
Future minimum payments under third-party contracts for firm gas supply, which
expire at various dates through the year 2002, are as follows: 2000 -
$1,698,000; 2001 - $1,216,000; and 2002 - $842,000. A portion of firm supply
requirements is met through the withdrawal of gas from the storage facility
owned by Bay Gas, EnergySouth's 87.5% owned partnership. Mobile Gas has a gas
storage agreement with Bay Gas to receive storage services for an initial period
of 20 years, which began in September 1994 with the commencement of commercial
operations of the storage facility. The Company's purchased gas adjustment
provision in rate schedules filed with the APSC allows the recovery of demand
and commodity costs of purchased gas from customers. Should the Company's
customer base decline due to deregulation or other reasons, resulting in costs
related to firm gas supply in excess of requirements, Management believes it
would be able to take one or more of the following actions: as part of the
regulatory decision allowing other suppliers to serve current customers, secure
the right to allocate firm gas supply costs to the new company supplying gas;
reduce some excess gas supply costs through a negotiated settlement with
suppliers; flow excess gas supply costs to existing customers through the
purchased gas component of customers rates.
ENVIRONMENTAL
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations. See Note 7 to the
Consolidated Financial Statements for a discussion of certain environmental
issues.
LIQUIDITY AND CAPITAL RESOURCES
The Company generally relies on cash generated from operations and on a
temporary basis, short-term borrowings, to meet working capital requirements and
to finance normal capital expenditures. The Company issues debt and equity for
longer term financing as needed. Cash provided by operating activities was $18.5
million, $14.6 million and $14.9 million in 1999, 1998 and 1997, respectively.
The increase in cash flow from operating activities in 1999 is due to an
increase in net income, adjusted for non-cash components, and the change in
operating assets and liabilities which generally reflects the timing differences
between years of cash receipts and payments on receivables and payables. The
decrease in cash provided by operating activities in 1998 compared to 1997 is
primarily due to a decrease in deferred tax expense.
Financing activities used cash of $4.1 million and $4.7 million in 1999 and
1998, respectively, and provided cash of $1.5 million in 1997. In October 1998,
the Company redeemed early $2,500,000 of 10.25% First Mortgage Bonds. Changes in
short-term borrowings represent interim financing. As of September 30, 1999,
1998 and 1997, the Company had borrowings on its revolving credit agreement of
$17.2 million, $12.7 million and
15
<PAGE> 17
$10.7 million, respectively, of which $15.9 million, $12.7 million and $10.7
million, respectively, was related to the purchase of short-term federal
obligations for shares tax planning purposes. These investments matured in early
October of each year and the proceeds were used to repay the short-term debt.
Additional funding for working capital and capital requirements was obtained in
1997 from issuance of $12 million of 7.27% First Mortgage Bonds. A majority of
the funding was used to finance the construction of gas distribution facilities
in order to serve a large industrial customer with whom the Company has a
long-term contract to transport gas.
Cash used in investing activities reflects the capital-intensive nature of
the Company's business. During 1999, 1998 and 1997, the Company used cash for
construction of distribution and storage facilities, purchases of equipment and
other general improvements of $10.0 million, $7.6 million and $12.2 million,
respectively. Capital expenditures related to the gas storage facility were
$1,153,000, $288,000 and $831,000 in 1999, 1998 and 1997, respectively, while
the remaining portion of capital expenditures for each year primarily reflects
gas distribution system improvements and expansion.
The Company expects fiscal 2000 capital expenditures relating to regular
construction activity, equipment purchases and other general improvements to be
approximately $10.2 million. Bay Gas is planning to construct an additional
salt-dome cavern for storing 3.5 Bcf of natural gas with expanded injection and
withdrawal facilities. Bay Gas expects fiscal 2000 costs relating to the
additional cavern and facilities to be approximately $10.5 million. The
expansion of storage facilities is expected to be complete by September 2001 and
to be funded through the debt and/or equity markets. Funds for the Company's
short-term cash needs are expected to come from cash provided by operations and
borrowings under the Company's revolving credit agreement. At September 30,
1999, excluding the borrowings under the credit agreement related to the
purchase of short-term investments for shares tax planning purposes, the Company
had $18.7 million available for borrowing on its revolving credit agreement.
Management believes it has adequate financial flexibility to meet its expected
cash needs in the foreseeable future.
YEAR 2000
The Company has substantially completed its work to resolve the potential
impact of the Year 2000 on the ability of its computerized information systems
to accurately process information that may be date sensitive. Programs that
recognize a date using "00" as the year 1900 rather than 2000 could result in
errors or system failures that could ultimately cause the Company to interrupt
service or become unable to process transactions and could thereby require the
Company to cease operations pending resolution of the problem. Such an
eventuality would materially adversely affect the Company's business, financial
condition and results of operations. Accordingly, management has devoted
significant attention to identifying Year 2000 issues and testing its systems
for Year 2000 compliance.
The identification, assessment, remediation and testing of the Company's
computer systems have been completed. As a result, the Company has made changes
to its computer application programs and tested them accordingly. Personal
computers which are not Year 2000 ready have been identified and will be
replaced or removed from critical functions before the end of calendar 1999. The
state of Year 2000 readiness of hardware and software already evaluated will
continue to be monitored throughout 1999 to maintain this
16
<PAGE> 18
readiness and to determine that there have been no subsequent changes,
exclusions or disclaimers by manufacturers resulting in a loss of Year 2000
readiness. Mission critical processes have been identified and contingency plans
have been developed in an effort to ensure the uninterrupted continuation of
customer service. An inventory and assessment of the Company's embedded systems
has been completed. The two systems for which failure of embedded systems would
be critical are responsible for monitoring and controlling 1) the distribution
of gas through the Company's pipeline system and 2) the underground storage
facility. Both systems have been replaced with systems that are certified by the
vendors to be Year 2000 compliant.
In addition to the remediation and testing efforts of the Company's
internal systems, the Company has contacted each of its significant vendors to
obtain a commitment that they are or will be Year 2000 compliant. If such
assurances are not forthcoming, or if management believes for any reason that
any of its significant vendors will not be Year 2000 compliant when required,
management plans to either contract with other vendors that would be able to
provide similar services at similar costs or have plans in place so operations
will not be materially affected.
During March 1999, the Company's Year 2000 project was subjected to a third
party Readiness Review for completeness. The Company has responded to the
recommendations made by the third party review which includes a limited amount
of on-going testing of third party software, continued assessment and inquiry of
significant vendors and finalizing contingency plans for mission critical
processes. Each department within the Company has completed a written
contingency plan which has been compiled into a comprehensive plan for the
Company. A steering committee of the Company's executive management has reviewed
and will continue to review the Year 2000 project progress on a regular basis.
As of September 30, 1999, the Company had incurred approximately $166,000
of remediation costs related to Year 2000 which was expensed and expects to
incur an additional $21,000. The Company has been utilizing working capital to
fund its Year 2000 compliance program and anticipates that it will continue to
do so. The Company's internal costs with respect to the Year 2000 project have
not been separately identified, but management believes that they are
immaterial. Through our Year 2000 project analysis, the system responsible for
monitoring and controlling the underground storage facilities was determined not
to be Year 2000 compliant. The Company incurred and capitalized approximately
$70,000 in fiscal 1999 for the replacement system. The system responsible for
monitoring and controlling the distribution of gas through the Company's
pipeline system was planned and scheduled for replacement as part of the
Company's normal systems upgrade before the Year 2000 project was initiated. The
primary reason for replacing this system was to achieve increased efficiency and
functionality. The cost of this replacement has been appropriately capitalized
and is excluded from the above Year 2000 costs.
The Company has identified what it believes are the most significant worst
case Year 2000 scenarios which would have a material, adverse impact on the
Company. These include the ability to receive gas into our system and deliver
gas to customers, the ability to communicate with customers, and the ability to
bill and process payment collections on a timely basis. The most reasonably
likely worst case scenario associated with the Year 2000 issues would be the
Company's inability to continue to receive and distribute gas to its customers
without interruption. In order to address this worst case scenario, the Company
17
<PAGE> 19
has developed contingency plans to continue to deliver gas primarily through
manual intervention and other procedures should it become necessary to do so.
Such procedures include back-up power supply for its critical distribution and
storage operations, and if necessary, curtailment of supply. The Company's
storage capacity would be used to supplement system supply in the event its
suppliers are unable to make deliveries. The Company's contingency plans also
include measures for communicating with emergency services and alternative
methods of communicating with employees stationed at critical locations within
the service territory and with employees scheduled to handle potential service
calls.
Contingency planning, risk mitigation, and testing activities will continue
through the year rollover by the Company. The Company's goal is that Year 2000
issues will be addressed in a manner that will prevent such issues from having a
material effect on the Company's business, financial condition and result of
operations. While the Company has and will continue to pursue Year 2000
compliance, there can be no assurance that the Company and its vendors will be
successful in identifying and addressing all material Year 2000 issues.
FORWARD-LOOKING STATEMENTS
Statements contained in this report which are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially.
Such risks and uncertainties with respect to the Company include, but are not
limited to, its ability to successfully achieve internal performance goals,
competition, the effects of state and federal regulation, including rate relief
to recover increased capital and operating costs, general economic conditions,
and specific conditions in the Company's service area. Additional factors that
may impact forward-looking statements include the Company's dependence on
external suppliers, partners, operators, service providers, and governmental
agencies and their ability to upgrade their business systems and measurement and
control systems in order to mitigate the potential adverse effects of the Year
2000 issue.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have any derivative financial instruments such as
futures, forwards, swaps and options. Also, the Company has no market
risk-sensitive instruments held for trading purposes. At September 30, 1999 the
Company had approximately $59.0 million of long-term debt at fixed interest
rates. Interest rates range from 7.27% to 9.00% and the maturity dates of such
debt extend to 2023. See the information provided under the captions "The
Company", "Gas Supply", and "Liquidity and Capital Resources" in this Form 10-K
for the fiscal year ended September 30, 1999 for a discussion of the Company's
risks related to regulation, weather, gas supply, and the capital-intensive
nature of the Company's business.
Item 8. Financial Statements and Supplementary Data.
The financial statements and financial statement schedules and the
Independent Auditors' Report thereon filed as part of this report are listed in
the "EnergySouth, Inc. and
18
<PAGE> 20
Subsidiaries Index to Financial Statements and Schedules" at Page F-1, which
follows Part IV hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no disagreements on accounting and financial disclosure
with the Company's outside auditors which are required to be disclosed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information under the captions "Election of Directors" and "Information
Regarding the Board of Directors" contained in the Company's definitive proxy
statement with respect to its 2000 Annual Meeting of Stockholders is
incorporated herein by reference.
For information with respect to executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this Report.
Information under the caption "Reports Under Section 16 of the Securities
and Exchange Act" contained in the Company's definitive proxy statement with
respect to its 2000 Annual Meeting of Stockholders is incorporated herein by
reference.
Item 11. Executive Compensation.
Information under the caption "Executive Compensation" contained in the
Company's definitive proxy statement with respect to its 2000 Annual Meeting of
Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Company's definitive proxy statement
with respect to its 2000 Annual Meeting of Stockholders is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
There were no transactions required to be disclosed pursuant to this item.
19
<PAGE> 21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a), (d) Financial Statements and Financial Statement Schedules
See "EnergySouth, Inc. and Subsidiaries Index to Financial
Statements and Schedules" at page F-1, which follows
Part IV hereof.
(3) Exhibits - See Exhibit Index on pages E-1 through E-5.
(b) No reports on Form 8-K were filed during the last quarter of
the fiscal year ended September 30, 1999.
(c) Exhibits filed with this report are attached hereto.
20
<PAGE> 22
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ENERGYSOUTH, INC.
-----------------
Registrant
December 29, 1999 By: /s/ Charles P. Huffman
-------------------------
Charles P. Huffman, Vice President,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William J. Hearin Director, Chairman December 29, 1999
- ------------------------------------------
William J. Hearin
/s/ Walter L. Hovell Director, Vice-Chairman December 29, 1999
- ------------------------------------------
Walter L. Hovell
Director, President and
Chief Executive Officer
/s/ John S. Davis (Principal Executive Officer) December 29, 1999
- ------------------------------------------
John S. Davis
Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
/s/ Charles P. Huffman December 29, 1999
- ------------------------------------------
Charles P. Huffman
/s/ Joseph G. Hollis, Jr. Director December 29, 1999
- ------------------------------------------
Joseph G. Hollis, Jr.
</TABLE>
21
<PAGE> 23
Signatures (Continued)
<TABLE>
<S> <C> <C>
/s/ John C. Hope Director December 29, 1999
- ------------------------------------------
John C. Hope
/s/ Gaylord C. Lyon Director December 29, 1999
- ------------------------------------------
Gaylord C. Lyon
/s/ S. Felton Mitchell, Jr. Director December 29, 1999
- ------------------------------------------
S. Felton Mitchell, Jr.
/s/ G. Montgomery Mitchell Director December 29, 1999
- ------------------------------------------
G. Montgomery Mitchell
/s/ F. B. Muhlfeld Director December 29, 1999
- ------------------------------------------
F. B. Muhlfeld
/s/ E. B. Peebles, Jr. Director December 29, 1999
- ------------------------------------------
E. B. Peebles, Jr.
/s/ Thomas B. Van Antwerp Director December 29, 1999
- ------------------------------------------
Thomas B. Van Antwerp
</TABLE>
22
<PAGE> 24
ENERGYSOUTH, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Statements of Income for the years ended
September 30, 1999, 1998 and 1997 F-3
Consolidated Balance Sheets, September 30, 1999 and 1998 F-4
Consolidated Statements of Common Stockholders' Equity
for the years ended September 30, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedules
II Valuation and Qualifying Accounts and Reserves, Years
Ended September 30, 1999, 1998 and 1997 S-1
</TABLE>
Schedules other than that referred to above are omitted and are not applicable
or not required.
F-1
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
EnergySouth, Inc.
Mobile, Alabama
We have audited the accompanying consolidated balance sheets of
EnergySouth, Inc. and its subsidiaries as of September 30, 1999 and 1998, and
the related consolidated statements of income, common stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1999.
Our audits also included the financial statement schedule listed in the Index
referred to in Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of EnergySouth, Inc. and its
subsidiaries at September 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1999 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Atlanta, Georgia
October 29, 1999
F-2
<PAGE> 26
CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Years Ended September 30, (in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues
Gas Revenues $ 63,889 $ 70,740 $ 69,622
Merchandise Sales 2,827 2,920 2,678
Other 1,344 1,329 1,281
-------- -------- --------
Total Operating Revenues 68,060 74,989 73,581
-------- -------- --------
Operating Expenses
Cost of Gas 16,183 22,896 21,895
Cost of Merchandise 2,231 2,255 1,987
Operations 17,250 17,371 18,269
Maintenance 1,579 1,533 1,542
Depreciation 6,467 6,278 5,933
Taxes, Other Than Income Taxes 5,362 5,592 5,269
-------- -------- --------
Total Operating Expenses 49,072 55,925 54,895
-------- -------- --------
Operating Income 18,988 19,064 18,686
-------- -------- --------
Other Income and (Expense)
Interest Expense (5,214) (5,533) (5,711)
Allowance for Borrowed Funds Used During Construction 49 60 177
Interest Income 315 319 202
Minority Interest (511) (526) (516)
-------- -------- --------
Total Other Income (Expense) (5,361) (5,680) (5,848)
-------- -------- --------
Income Before Income Taxes 13,627 13,384 12,838
Income Taxes (Note 4) 5,003 4,967 4,712
-------- -------- --------
Income Before Cumulative Effect of Changes in Accounting Principles 8,624 8,417 8,126
-------- -------- --------
Cumulative Effect on Prior Years of Change in Accounting Method For
Unbilled Revenue (Net of Income Tax Expense of $133)(Note 1) 235 -- --
Cumulative Effect on Prior Years of Change in Accounting Method For
Start-Up Costs (Net of Income Tax Benefit of $331)(Note 1) (584) -- --
-------- -------- --------
Total Cumulative Effect of Accounting Changes (Net of Tax) (349) -- --
-------- -------- --------
Net Income $ 8,275 $ 8,417 $ 8,126
======== ======== ========
Basic Earnings Per Share:
Income Before Cumulative Effect of Changes in Accounting Principles $ 1.77 $ 1.73 $ 1.68
Cumulative Effect of Accounting Changes (0.07) -- --
-------- -------- --------
Net Income $ 1.70 $ 1.73 $ 1.68
======== ======== ========
Diluted Earnings Per Share:
Income Before Cumulative Effect of Changes in Accounting Principles $ 1.75 $ 1.71 $ 1.66
Cumulative Effect of Accounting Changes (0.07) -- --
-------- -------- --------
Net Income $ 1.68 $ 1.71 $ 1.66
======== ======== ========
Pro Forma Amounts Assuming Retroactive Application
of Accounting Changes:
Net Income $ 8,624 $ 8,454 $ 8,150
======== ======== ========
Basic Earnings Per Share $ 1.77 $ 1.74 $ 1.68
======== ======== ========
Diluted Earnings Per Share $ 1.75 $ 1.72 $ 1.67
======== ======== ========
Average Common Shares Outstanding
Basic 4,884 4,865 4,844
Diluted 4,933 4,926 4,881
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 27
CONSOLIDATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
September 30, (in thousands) 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 22,875 $ 18,515
Receivables
Gas 4,099 4,468
Unbilled Revenue (Note 1) 886 --
Merchandise 2,921 3,021
Other 687 759
Allowance for Doubtful Accounts (735) (626)
Materials, Supplies, and Merchandise (At Average Cost) 1,357 1,327
Gas Stored Underground For Current Use (At Average Cost) 1,180 1,435
Deferred Gas Costs (Note 1) -- 176
Deferred Income Taxes 1,129 1,430
Prepayments 2,156 1,375
--------- ---------
Total Current Assets 36,555 31,880
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT (NOTE 2) 175,768 170,894
Less: Accumulated Depreciation and Amortization 49,855 44,872
--------- ---------
Property, Plant, and Equipment - Net 125,913 126,022
Construction Work in Progress 3,763 1,106
--------- ---------
Total Property, Plant, and Equipment 129,676 127,128
--------- ---------
OTHER ASSETS
Regulatory Assets (Note 2) 738 909
Merchandise Receivables Due After One Year 5,670 5,371
Deferred Charges 996 1,253
--------- ---------
Total Other Assets 7,404 7,533
--------- ---------
TOTAL $ 173,635 $ 166,541
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 28
LIABILITIES AND CAPITALIZATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
September 30, (in thousands, except share data) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current Maturities of Long-Term Debt (Note 3) $ 962 $ 4,600
Notes Payable 17,177 12,665
Accounts Payable 4,368 2,511
Dividends Declared 1,150 1,072
Customer Deposits 1,428 1,461
Taxes Accrued 3,182 3,551
Interest Accrued 1,612 1,794
Deferred Purchased Gas Adjustment 754 592
Other Liabilities 2,851 1,898
-------- --------
Total Current Liabilities 33,484 30,144
-------- --------
OTHER LIABILITIES
Accrued Pension Cost (Note 6) 1,189 1,452
Accrued Postretirement Benefit Cost (Note 6) 1,112 1,332
Deferred Income Taxes 11,705 10,945
Deferred Investment Tax Credits 392 418
-------- --------
Total Other Liabilities 14,398 14,147
-------- --------
Total Liabilities 47,882 44,291
-------- --------
Commitments and Contingencies (Note 7) -- --
-------- --------
CAPITALIZATION
Stockholders' Equity (Note 5)
Common Stock, $.01 Par Value
(Authorized 10,000,000 Shares; Outstanding
1999 - 4,894,000; 1998 - 4,872,000 Shares) 49 49
Capital in Excess of Par Value 18,563 18,135
Retained Earnings 45,542 41,711
-------- --------
Total Stockholders' Equity 64,154 59,895
Minority Interest 3,582 3,376
Long-Term Debt (Less Current Maturities) (Note 3) 58,017 58,979
-------- --------
Total Capitalization 125,753 122,250
-------- --------
Total $173,635 $166,541
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 29
CONSOLIDATED
STATEMENTS OF
COMMON STOCKHOLDERS'
EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------- Capital in
Number of Par Excess of Retained
(In thousands, except per share data) Shares Value Par Value Earnings
- ------------------------------------- --------- ------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 4,832 $ 49 $ 17,347 $ 33,004
Net Income 8,126
Dividend Reinvestment Plan 22 399
Cash Dividends - Common Stock - $.78 per share (3,748)
------- ------- ---------- --------
BALANCE AT SEPTEMBER 30, 1997 4,854 49 17,746 37,382
Net Income 8,417
Dividend Reinvestment Plan 16 369
Cash Paid in Lieu of Fractional Shares
for Stock Conversion (6)
Exercise of Stock Options 2 26
Cash Dividends - Common Stock - $.84 per share (4,088)
------- ------- ---------- --------
BALANCE AT SEPTEMBER 30, 1998 4,872 49 18,135 41,711
Net Income 8,275
Dividend Reinvestment Plan 19 386
Exercise of Stock Options 3 42
Cash Dividends - Common Stock - $.91 per share (4,444)
------- ------- ---------- --------
BALANCE AT SEPTEMBER 30, 1999 4,894 $ 49 $ 18,563 $ 45,542
======= ======= ========== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 30
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Years Ended September 30, (in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,275 $ 8,417 $ 8,126
Depreciation and Amortization 6,795 6,596 6,181
Organization and Start-Up Costs Written Off 1,003 -- --
Provision for Losses on Accounts Receivable 473 534 821
Provision for Deferred Income Taxes 1,129 745 1,691
Provision for Deferred Gas Cost 176 55 (45)
Minority Interest 206 391 534
Changes in Operating Assets and Liabilities 433 (2,177) (2,379)
-------- -------- --------
Net Cash Provided by Operating Activities 18,490 14,561 14,929
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (10,026) (7,642) (12,232)
-------- -------- --------
Net Cash Used In Investing Activities (10,026) (7,642) (12,232)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Long-Term Debt (4,600) (2,930) (2,818)
Proceeds from Issuance of Long-Term Debt -- -- 12,000
Changes in Short-Term Borrowings 4,512 1,965 (4,300)
Payment of Dividends, Net of Dividend Reinvestment (4,016) (3,699) (3,349)
-------- -------- --------
Net Cash Provided (Used) by Financing Activities (4,104) (4,664) 1,533
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,360 2,255 4,230
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,515 16,260 12,030
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,875 $ 18,515 $ 16,260
-------- -------- --------
CASH PAID DURING THE YEAR FOR:
Interest $ 5,216 $ 5,558 $ 5,325
-------- -------- --------
Income Taxes $ 4,153 $ 3,886 $ 3,289
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of EnergySouth, Inc. (EnergySouth) and its
subsidiaries (collectively the Company) include the accounts of Mobile Gas
Service Corporation (Mobile Gas); EnergySouth Services, Inc. (Services); MGS
Storage Services, Inc. (Storage); MGS Marketing Services, Inc. (Marketing); an
87.5% owned partnership, Bay Gas Storage Company, Ltd. (Bay Gas), and a 51%
owned partnership, Southern Gas Transmission Company (SGT). Minority interest
represents the respective other owner's proportionate shares of the income and
equity of Bay Gas and SGT. All significant intercompany balances and
transactions have been eliminated. All references to number of shares, per share
amounts, stock option data and market prices presented throughout the financial
statements have been restated to reflect the three-for-two conversion of Mobile
Gas common stock into EnergySouth common stock, effective February 2, 1998.
DESCRIPTION OF BUSINESS
The Company is principally engaged in the distribution and storage of natural
gas. Through Mobile Gas and SGT, the Company is engaged primarily in the
distribution and transportation of natural gas to residential, commercial and
industrial customers in Southwest Alabama. The Alabama Public Service Commission
(APSC) regulates the Company's gas distribution operations. For the major
portion of the Company's business, the APSC approves rates which are intended to
permit the recovery of the cost of service including a return on investment. Gas
deliveries to certain industrial customers are subject to regulation by the APSC
through contract approval.
Through Storage and Bay Gas, the Company provides for the underground storage of
natural gas and transportation services. The APSC regulates intrastate storage
operations through contract approval. Interstate gas storage contracts do not
require APSC approval since the Federal Energy Regulatory Commission (FERC),
which has jurisdiction over such contracts, allows them to have market-based
rates. The FERC issued an order on April 28, 1999 granting authority to Bay Gas
to provide transportation-only services to interstate and intrastate shippers
and approved rates for such services.
The Company also provides natural gas marketing, merchandising, and other
energy-related services through Marketing, Mobile Gas, and Services.
F-8
<PAGE> 32
REVENUES AND GAS COSTS
Effective October 1, 1998, the Company changed its method of accounting for
unbilled revenues to be consistent with prevailing industry practice. Prior to
October 1, 1998, the Company recorded revenues as meters were read on a monthly
cycle basis and the commodity cost of purchased gas applicable to gas delivered
but not billed at month-end was deferred and classified as Deferred Gas Costs
within the Company's Balance Sheet. The accrual method adopted records revenues
based upon estimated consumption through the end of the month for all customers
regardless of the meter reading date. The effect of the change for the fiscal
year ended September 30, 1999 was to increase net income by $268,000, or $.055
per share of which $235,000, or $.05 per share, the cumulative effect of the
change as of October 1, 1998, has been reclassified and reported as a separate
component of net income.
Increases or decreases in the cost of gas and certain other costs are passed
through to customers in accordance with provisions in the Company's rate
schedules. Any over or under recoveries of these costs are charged or credited
to cost of gas and included in current assets or liabilities as the Deferred
Purchased Gas Adjustment within the Company's Balance Sheet. Mobile Gas' rates
contain a temperature adjustment rider which is designed to offset the impact of
unusually cold or warm weather on the Company's operating margin. The adjustment
is calculated monthly and applied to customer's bills in the same billing cycle
in which the weather variation occurs. The temperature adjustment rider applies
to substantially all residential, small commercial and small industrial
customers.
PROPERTY, PLANT, AND EQUIPMENT
Substantially all property, plant, and equipment is considered utility plant.
Included in property, plant, and equipment are acquisition adjustments, net of
amortization, of $7,660,000 and $8,039,000 at September 30, 1999 and 1998,
respectively. Such acquisition adjustments are being amortized to cost of
service over the lives of the assets acquired.
The cost of additions includes direct labor and materials, allocable
administrative and general expenses, pension and payroll taxes, and an allowance
for funds used during construction. The cost of depreciable property retired,
plus cost of dismantling, less salvage, is charged to accumulated depreciation.
Estimated interest cost associated with property under construction, based upon
weighted average interest rates for short-term borrowings or the interest rate
on borrowings for specific projects, is capitalized as an allowance for borrowed
funds used during construction. Maintenance, repairs, and minor renewals and
betterment of property are charged to operations.
Provisions for depreciation are computed principally on straight-line rates for
financial statement purposes and on accelerated rates for income tax purposes.
Depreciation for financial statement purposes is provided at an annual rate
averaging approximately 4.0% of depreciable property, excluding the gas storage
facility which is depreciated at an annual rate averaging 2.7%.
F-9
<PAGE> 33
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INCOME TAXES
The Company records deferred tax liabilities and assets, as measured by enacted
tax rates, for all temporary differences caused when the tax basis of an asset
or liability differs from that reported in the financial statements. Investment
tax credits realized after 1980 are deferred and amortized over the average life
of the related property in accordance with regulatory treatment.
EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average number of
common shares outstanding during each period. Diluted earnings per share are
computed based on the weighted average number of common shares and diluted
potential common shares, using the treasury stock method, outstanding during
each period.
Average common shares used to compute basic earnings per share differed from
average common shares used to compute diluted earnings per share by equivalent
shares of 49,000, 61,000, and 37,000, for the years ended September 30, 1999,
1998, and 1997, respectively. These differences in equivalent shares are from
outstanding stock options.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LONG-LIVED ASSETS
The Company reviews its long-lived assets whenever indications of impairment are
present. If any assets are determined to be impaired, such assets would be
written down to their estimated fair market values. The Company does not believe
it has any assets which are currently impaired.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) was issued in June 1998 and
establishes accounting and reporting standards for derivative instruments and
hedging activities. In June 1999, Statement of Financial Accounting Standards
No. 137 (SFAS 137)
F-10
<PAGE> 34
was issued which defers the effective date of SFAS 133 for the Company until the
first quarter of fiscal 2000. The Company does not anticipate that SFAS 133 will
have a significant impact on the financial statements.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). SOP 98-1 established criteria for
accounting for costs as operating expense when incurred, or as a capital
expenditure. It provides that internal and external cost incurred to develop or
obtain new software during the "application development stage" should be
capitalized. Other costs, including preliminary project costs, training, data
conversion, and upgrades and enhancements would be expensed under the provisions
of SOP 98-1. With implementation of SOP 98-1 in fiscal 2000, the Company will
begin to capitalize certain direct payroll and payroll-related costs for
employees directly associated with activities defined within the "application
development stage" which in the past have been expensed. The materiality of this
change is dependent upon the magnitude of the costs of specific software
development or acquisition projects incurred in any period.
Effective October 1, 1998, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" (SOP 98-5) and recorded a
cumulative effect of change in accounting method expense of $584,000, or $0.12
per share, net of tax, as a result of expensing organization and start-up costs
previously capitalized. The effect on current and future years operating income
as a result of not expensing the amortization of such costs is not material to
the financial statements.
RECLASSIFICATIONS
Certain amounts in the prior years financial statements have been reclassified
to conform with the 1999 financial statement presentation.
F-11
<PAGE> 35
2. PROPERTY AND REGULATORY ASSETS
The functional classifications for the cost of property, plant, and equipment
are as follows at September 30, (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Distribution plant $107,714 $103,347
General Plant 17,249 16,219
Storage plant 37,708 38,022
Transmission plant 3,485 3,479
Acquisition adjustment 9,612 9,827
-------- --------
Total property, plant, and equipment $175,768 $170,894
-------- --------
</TABLE>
The components of regulatory assets are as follows at September 30, (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Income tax (Note 4) $ 738 $ 897
Other -- 12
-------- --------
Total regulatory assets $ 738 $ 909
-------- --------
</TABLE>
3. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following at September 30, (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Mobile Gas Service Corporation
First Mortgage Bonds
10.25% Series, due October 1, 2001 $ -- $ 3,500
8.75% Series, due July 1, 2022 12,000 12,000
7.48% Series, due July 1, 2023 12,000 12,000
7.27% Series, due November 1, 2006 12,000 12,000
9% Note, due May 13, 2013 3,480 3,603
Bay Gas Storage Company, Ltd.
8.19% Guaranteed Senior Secured Notes
due December 1, 2014 19,499 20,263
Southern Gas Transmission Company
Revenue Note, Series A, due February 1, 1999
(Interest rate of 8.05% for 1998) -- 213
------- -------
Total 58,979 63,579
Less amounts due within one year 962 4,600
------- -------
Long-term debt $58,017 $58,979
======= =======
</TABLE>
The 10.25% Series, due October 1, 2001, was called for early redemption on
October 1, 1998 as allowed by the Indenture of Mortgage. As a result of the
early payment of these bonds, the $3,500,000 principal amount due as of
September 30, 1998 was included in current maturities of long-term debt at
September 30, 1998. Other maturities and sinking fund requirements on long-term
debt in each of the five fiscal years subsequent to September 30, 1999 are as
follows: 2000 - $962,000;
F-12
<PAGE> 36
2001 - $2,795,000; 2002 - $2,834,000, 2003 - $2,931,000, and 2004 - $4,267,000.
The Company's long-term debt instruments contain certain debt to equity ratio
requirements and restrictions on the payment of cash dividends and the purchase
of shares of its capital stock. None of these requirements and restrictions are
expected to have a significant impact on the Company's ability to pay dividends
in the future. Substantially all of the property of the Company is pledged as
collateral for the long-term debt.
At September 30, 1999, the Company had a $20 million revolving credit agreement
with a group of banks. Borrowings under the agreement may be made as needed
provided that the Company is in compliance with certain covenants in the
revolving credit agreement and other loan agreements. The Company currently is
in compliance with all such covenants. The Company pays a fee for its committed
lines of credit rather than maintain compensating balances. The commitment fee
is 0.125% of the average daily unborrowed amount during the annual period of
calculation. Unused committed lines of credit at September 30, 1999 and 1998
were $2.8 million and $7.3 million, respectively. The weighted average interest
rates on short-term debt outstanding at September 30, 1999 and 1998 were 6.4%
and 6.6%, respectively.
F-13
<PAGE> 37
4. INCOME TAXES
The components of income tax expense are as follows for the years ended
September 30, (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current
Federal $ 3,473 $ 3,869 $ 2,750
State 256 392 286
------- ------- -------
Total Current Taxes 3,729 4,261 3,036
------- ------- -------
Deferred
Federal 983 662 1,544
State 119 70 158
------- ------- -------
Total Deferred Taxes 1,102 732 1,702
------- ------- -------
Deferred investment tax credit
amortization (26) (26) (26)
------- ------- -------
Total income tax expense 4,805 4,967 4,712
------- ------- -------
Amounts reclassified on the income statement
to cumulative effect of accounting changes 198 -- --
------- ------- -------
Total income tax expense before cumulative
effect of accounting changes $ 5,003 $ 4,967 $ 4,712
======= ======= =======
</TABLE>
A reconciliation of income tax expense and the amount computed by multiplying
income before income taxes by the statutory federal income tax rate for the
periods indicated is as follows for the years ended September 30, (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income tax expense at federal
statutory rate $ 4,478 $ 4,550 $ 4,365
Excess of book over tax depreciation on
pre-1981 property additions 127 120 113
State income taxes 284 305 289
Other - net (84) (8) (55)
------- ------- -------
Total income tax expense $ 4,805 $ 4,967 $ 4,712
======= ======= =======
Effective tax rate 36.7% 37.1% 36.7%
======= ======= =======
</TABLE>
F-14
<PAGE> 38
The tax effect of differences in book and tax depreciation related to pre-1981
property additions was recognized in income for accounting and ratemaking
purposes prior to 1981. With the adoption in fiscal 1994 of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recorded deferred taxes related to this temporary difference and a
corresponding regulatory asset expected to be collected in customer rates when
such taxes become payable in accordance with the current ratemaking practices
followed by the APSC. Such future collections included in regulatory assets were
$738,000 and $897,000 at September 30, 1999 and 1998, respectively.
No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance sheet.
The significant components of the Company's net deferred tax liability as of
September 30, are (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax liabilities
Differences between book and tax
basis of property $12,834 $11,797
Prepaid insurance 348 199
Regulatory assets 267 325
Other 20 87
------- -------
Total deferred tax liabilities 13,469 12,408
------- -------
Deferred tax assets
Pension 430 526
Gross receipts taxes 526 592
Unbilled revenue -- 280
Postretirement benefits 193 223
Purchased gas adjustment 272 214
Bad debts 262 222
Accrued vacation 201 193
Other 1,009 643
------- -------
Total deferred tax assets 2,893 2,893
------- -------
Net deferred tax liability $10,576 $ 9,515
------- -------
</TABLE>
5. CAPITAL STOCK
The number of authorized shares of EnergySouth common stock is 10,000,000
shares. Effective February 2, 1998, shareholders of Mobile Gas received three
shares of EnergySouth common stock for each two shares of Mobile Gas common
stock held on that date. Cash was paid to certain shareholders in lieu of
fractional shares. An amount equal to the par value of the incremental shares
issued was transferred from capital in excess of par value. All references to
number of shares and per share amounts have been restated to reflect the
three-for-two conversion.
F-15
<PAGE> 39
The Amended and Restated Stock Option Plan of EnergySouth, Inc. (the "Plan")
provides for the granting of incentive stock options, non-qualified stock
options, and stock appreciation rights to key employees. Under the Plan, an
aggregate of 350,000 shares of the Company's authorized but unissued Common
Stock have been reserved for issuance. On January 29, 1999, the stockholders
approved a proposed amendment to the Plan to increase the number of shares
available for issuance from 225,000 to 350,000 shares. Stock options become 25%
exercisable on the first anniversary of the grant date and an additional 25%
become exercisable each succeeding year. No option may be exercised after the
expiration of ten years from the grant date. During the year ended September 30,
1995, 157,500 options were granted at an option price of $14.083, representing
the market price on the date of grant. During the year ended September 30, 1999,
31,500 options were granted at an option price of $22.00, representing the
market price on the date of grant. Transactions under the Plan are summarized
below:
<TABLE>
<CAPTION>
As of September 30, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Outstanding at beginning of year 155,650 157,500 157,500
Exercised (at $14.083) (3,000) (1,850) --
Granted (at $22.00) 31,500 -- --
-------- -------- --------
Outstanding at end of year 184,150 155,650 157,500
-------- -------- --------
Exercisable at end of year 152,650 116,275 78,750
-------- -------- --------
Remaining reserved for issuance at end of year 161,000 67,500 67,500
-------- -------- --------
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Accordingly, no compensation expense has been recognized for its stock
options granted. For purposes of disclosing pro-forma net income, the fair
market value of the options at the date of grant was estimated to be $7.71 using
a Black-Scholes options pricing model. The following weighted average
assumptions were used for valuing the options granted during fiscal 1999: risk
free interest rate of 4.65%, expected life of 10 years, stock price volatility
of 45.00%, and a dividend yield of 4.20%. Had compensation cost for these
options granted during 1999 been determined in accordance with SFAS 123, the
Company's net income and diluted earnings per share would have been $8,249,000,
or $1.67 per share for the year ended September 30, 1999.
At September 30, 1999, 263,000 shares of the Company's authorized but unissued
Common Stock were reserved for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan.
F-16
<PAGE> 40
6. RETIREMENT PLANS AND OTHER BENEFITS
The Company has a noncontributory, defined benefit retirement plan covering
substantially all of its employees. Benefits are based on the greater of amounts
resulting from two different formulas: years of service and average compensation
during the last five years of employment, or years of service and compensation
during the term of employment. The Company annually contributes to the plan the
amount deductible for federal income tax purposes.
The Company also provides certain health care and life insurance benefits for
retired employees. Substantially all employees may become eligible for such
benefits if they retire under the provisions of the Company's retirement plan.
The Company is accruing the costs over the expected service period of the
employees.
The "projected unit credit" actuarial method was used to determine service cost
and actuarial liability.
The following table sets forth the funded status of the plans and the amounts
recorded in the financial statements at September 30, (in thousands):
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of the period $ 18,729 $ 18,009 $ 3,543 $ 3,426
Service cost 696 599 85 82
Interest cost 1,390 1,299 258 249
Benefits paid (1,030) (986) (212) (202)
(Gain)/loss 341 (192) -- (12)
-------- -------- -------- --------
Benefit obligation at the end of the period $ 20,126 $ 18,729 $ 3,674 $ 3,543
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of assets at the beginning of the period $ 30,263 $ 29,293 $ 2,687 $ 2,366
Benefits paid (1,030) (986) -- --
Contributions -- -- 137 70
Actual return on plan assets 2,810 1,956 284 251
-------- -------- -------- --------
Fair value of plan assets at the end of the period $ 32,043 $ 30,263 $ 3,108 $ 2,687
-------- -------- -------- --------
FUNDED STATUS
Plan assets in excess of benefit obligation $ 11,917 $ 11,534 $ (566) $ (856)
Unrecognized net (gain)/loss (12,596) (12,334) (131) (23)
Prior service cost not yet recognized 351 391 (415) (453)
Remaining unrecognized transition asset (861) (1,043) -- --
-------- -------- -------- --------
Accrued benefit cost $ (1,189) $ (1,452) $ (1,112) $ (1,332)
-------- -------- -------- --------
</TABLE>
F-17
<PAGE> 41
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
------------------------ ----------------------
Weighted average assumptions as of
September 30, 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Average discount rate 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Expected rate of return on plan assets 7.5% 7.5% 7.5% 7.0% 7.0% 7.0%
Rate of compensation increase 6.1% 6.1% 6.1%
</TABLE>
The accumulated postretirement benefit obligation at September 30, 1999 and 1998
was determined using an assumed health care cost trend rate of 8.0% in 1999 and
8.7% in 1998, gradually declining to 5.0% in the fiscal year 2004 and
thereafter.
The assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Effect on total of service and
interest cost components $ 30 $ 26 $ (25) $ (22)
Effect on postretirement benefit obligations 228 199 (194) (170)
</TABLE>
Net periodic benefit cost included the following components for the years ended
September 30, (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
----------------------------- -----------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 696 $ 599 $ 574 $ 85 $ 82 $ 83
Interest cost 1,390 1,299 1,248 258 249 240
Amortization of transition asset (183) (183) (183) -- -- --
Amortization of prior service cost 40 40 40 (38) (38) (38)
Amortization of unrecognized (gain)/loss (320) (291) (184) -- -- --
Expected return on plan assets (1,886) (1,731) (1,554) (177) (156) (118)
------- ------- ------- ------- ------- -------
Net periodic benefit cost $ (263) $ (267) $ (59) $ 128 $ 137 $ 167
------- ------- ------- ------- ------- -------
</TABLE>
The Company has formed two voluntary employees' beneficiary association (VEBA)
trusts to fund postretirement health and life insurance benefits. The Company's
contributions to these trusts in 1999, 1998, and 1997 were $137,000, $70,000,
and $215,000, respectively.
The Company's eligible employees may participate in the Employee Savings Plan or
the Bargaining Unit Employees Savings Plan, both of which are 401(k) plans. The
Company's contributions for the years ended September 30, 1999, 1998, and 1997
were $239,000, $248,000, and $255,000, respectively.
F-18
<PAGE> 42
7. COMMITMENTS AND CONTINGENCIES
The Company has third-party contracts, which expire at various dates through the
year 2002, for the purchase, storage and delivery of gas supplies. Minimum
payments under these contracts in the fiscal years subsequent to September 30,
1999 are as follows: 2000 - $1,698,000; 2001 - $1,216,000; and 2002 - $842,000.
A portion of firm supply requirements is expected to be met through the
withdrawal of gas from the storage facility owned by Bay Gas. Mobile Gas has
entered into a Gas Storage Agreement under which Bay Gas is to provide storage
services for an initial period of 20 years which began in September 1994 with
the commencement of commercial operations of the storage facility. The purchased
gas adjustment provisions of the Company's rate schedules permit the recovery of
gas costs from customers.
The Company is subject to various federal, state and local laws and regulations
relating to the environment, which have not had a material effect on the
Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread availability of
natural gas, the Company manufactured gas for sale to its customers. In contrast
to some other companies which operated multiple manufactured gas plants, the
Company and its predecessor operated only one such plant, which discontinued
operations in 1933. The process for manufacturing gas produced by-products and
residuals, such as coal tar, and certain remnants of these residuals are
sometimes found at former gas manufacturing sites.
The Company conducted a preliminary assessment in 1994 of its former gas plant
site and has tested certain waters in the vicinity of the site. The Company
developed and has implemented a plan for the site based on the advice of
environmental consultants, which involves securing and monitoring the site, and
continued testing. Based on the results of tests to date, the Company does not
believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has, therefore, established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.
The Company is involved in litigation arising in the normal course of business.
Management believes that the ultimate resolution of such litigation will not
have a material adverse effect on the consolidated financial statements of the
Company.
F-19
<PAGE> 43
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Values of Financial Instruments", and are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying amounts for cash and cash equivalents, gas and other receivables,
notes payable, accounts payable and other current liabilities approximate fair
value. The fair value of merchandise receivables is estimated based on market
interest rates for similar receivables at the end of each respective year. The
carrying amount of merchandise receivables, as shown below, is net of the
reserve for uncollectible merchandise receivables of $581,000 and $484,000 for
the years ended September 30, 1999 and 1998, respectively. The fair value of
long-term debt is estimated based on interest rates available to the Company at
the end of each respective year for the issuance of debt with similar terms and
remaining maturities.
The carrying amount and the estimated fair value of such financial instruments
are as follows at September 30, (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Merchandise receivables $ 8,010 $ 8,068 $ 7,908 $ 7,941
Long-term debt 58,979 61,627 63,579 72,860
</TABLE>
F-20
<PAGE> 44
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1999 and 1998 is summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Dec. 31 Mar. 31 Jun. 30 Sep. 30
1999 ---------- ---------- ---------- ----------
- ----
<S> <C> <C> <C> <C>
Total operating revenues $ 19,859 $ 23,327 $ 13,266 $ 11,608
Total operating income 6,130 7,325 3,043 2,490
Income before cumulative effect 2,898 3,759 1,097 870
Cumulative effect of accounting changes (381) -- 32 --
Net income 2,517 3,759 1,129 870
Basic earnings per share
Income before cumulative effect $ 0.60 $ 0.77 $ 0.22 $ 0.18
Cumulative effect of accounting changes (0.08) -- 0.01 --
Net income 0.52 0.77 0.23 0.18
Diluted earnings per share
Income before cumulative effect $ 0.59 $ 0.76 $ 0.22 $ 0.18
Cumulative effect of accounting changes (0.08) -- 0.01 --
Net income 0.51 0.76 0.23 0.18
1998
- ----
Total operating revenues $ 20,328 $ 28,766 $ 14,109 $ 11,786
Total operating income 4,622 9,050 3,268 2,124
Net income 1,989 4,791 1,153 484
Basic earnings per share (1) $ 0.41 $ 0.99 $ 0.24 $ 0.10
Pro forma amounts assuming retroactive
application of accounting changes (1) 0.59 0.86 0.21 0.09
Diluted earnings per share (1) $ 0.40 $ 0.97 $ 0.23 $ 0.10
Pro forma amounts assuming retroactive
application of accounting changes 0.58 0.84 0.21 0.09
</TABLE>
The pattern of quarterly earnings reflects a seasonal nature because weather
conditions strongly influence operating results.
(1) The sum of the quarterly amounts does not equal the year's amount due to
rounding of the quarterly amounts or a changing number of average shares.
F-21
<PAGE> 45
10. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS 131)
as required for the year ended September 30, 1999. SFAS 131 requires that
companies disclose segment information based on how management makes decisions
about allocating resources to segments and measuring their performance. The
reportable segments disclosed herein were determined based on such factors as
the regulatory environment and the types of products and services offered.
The Company is principally engaged in two reportable business segments: Natural
Gas Distribution and Natural Gas Storage. The Natural Gas Distribution segment
is actively engaged in the distribution and transportation of natural gas to
residential, commercial and industrial customers through Mobile Gas and SGT. The
Natural Gas Storage segment provides for the underground storage of natural gas
and transportation services through the operations of Bay Gas and Storage. The
Company also provides marketing, merchandising, and other energy-related
services through Marketing, Mobile Gas, and Services which are aggregated with
EnergySouth, the holding company, and included in the Other category. For the
years ended September 30, 1999, 1998, and 1997, all segments were located in
Southwest Alabama.
The accounting policies of the segments are the same as those described in Note
1. Segment earnings information presented in the table below includes
intersegment revenues which are eliminated in consolidation. Such intersegment
revenues are primarily amounts paid by the Natural Gas Distribution segment to
the Natural Gas Storage segment. Segment assets are provided as additional
information and are net of intercompany advances, intercompany notes receivable
and investments in subsidiaries. Certain reclassifications have been made to
conform the prior year to the current year presentation.
F-22
<PAGE> 46
(NOTE 10 CONTINUED)
<TABLE>
<CAPTION>
As of and for the year ended Natural Gas Natural Gas
September 30, 1999 (in thousands): Distribution Storage Other Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 62,208 $ 5,842 $ 4,171 $ (4,161) $ 68,060
Operating expenses 47,872 2,203 3,158 (4,161) 49,072
Operating income 14,336 3,639 1,013 -- 18,988
Cumulative effect of accounting changes 176 (399) (126) -- (349)
Depreciation expense 5,446 1,019 2 -- 6,467
Capital expenditures 8,836 1,153 37 -- 10,026
Property, plant, and equipment, net 95,424 34,217 35 -- 129,676
Total assets 107,959 53,882 11,794 -- 173,635
</TABLE>
<TABLE>
<CAPTION>
As of and for the year ended Natural Gas Natural Gas
September 30, 1998 (in thousands): Distribution Storage Other Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 69,430 $ 5,339 $ 4,354 $ (4,134) $ 74,989
Operating expenses 54,504 2,215 3,340 (4,134) 55,925
Operating income 14,926 3,124 1,014 -- 19,064
Depreciation expense 5,284 994 -- -- 6,278
Capital expenditures 7,354 288 -- -- 7,642
Property, plant, and equipment, net 92,402 34,726 -- -- 127,128
Total assets 104,643 52,200 9,698 -- 166,541
</TABLE>
<TABLE>
<CAPTION>
As of and for the year ended Natural Gas Natural Gas
September 30, 1997 (in thousands): Distribution Storage Other Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 68,348 $ 5,323 $ 4,059 $ (4,149) $ 73,581
Operating expenses 53,934 1,848 3,262 (4,149) 54,895
Operating income 14,414 3,475 797 -- 18,686
Depreciation expense 4,974 959 -- -- 5,933
Capital expenditures 11,401 831 -- -- 12,232
Property, plant, and equipment, net 90,463 35,402 -- -- 125,865
Total assets 103,130 50,834 7,903 -- 161,867
</TABLE>
F-23
<PAGE> 47
SCHEDULE II
ENERGYSOUTH, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------- ---------- --------------------- ---------- --------
ADDITIONS
--------------------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES AMOUNT AMOUNT OF YEAR
----------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets
to which they apply - Allowance
for doubtful accounts:
September 30, 1999 $ 626 $ 472 $ 363 (1) $ 735
September 30, 1998 $ 536 $ 535 $ 445 (1) $ 626
September 30, 1997 $ 349 $ 821 $ 634 (1) $ 536
</TABLE>
NOTES:
(1) Amounts written off - net of recoveries.
S-1
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)
- ----------- -----------
<S> <C> <C> <C>
2 Articles of Merger of MBLE Merger Co., Inc. into Mobile Gas
Service Corporation (incorporated by reference to Exhibit 2 to
Form 10-Q Quarterly Report dated February 13, 1998)
3(i) Articles of Restatement of the Articles of Incorporation of
EnergySouth, Inc. (incorporated by reference to Exhibit 3(i)
to Form 10-Q Quarterly Report dated February 13, 1998)
3(ii) By-laws of EnergySouth, Inc., adopted January 31, 1998
(incorporated by reference to Exhibit 3.2 to Registration
Statement 333-42057)
4(a)-1 Indenture of Mortgage and Deed of Trust of Mobile Gas Service
Corporation dated as of December 1, 1941 (incorporated by
reference to Exhibit B-a to Mobile Gas Registration Statement
No. 2-4887)
Sup. Ind.
Dated as of File Reference Exhibit
----------- -------------- -------
4(a)-2 10/1/44 Reg. No. 2-5493 7-6
4(a)-3 7/1/52 Form 10-K for fiscal year 4(a)-3
ended September 30, 1985
4(a)-4 6/1/54 " 4(a)-4
4(a)-5 4/1/57 " 4(a)-5
4(a)-6 7/1/61 " 4(a)-6
4(a)-7 6/1/63 " 4(a)-7
4(a)-8 10/1/64 " 4(a)-8
4(a)-9 7/1/72 " 4(a)-9
4(a)-10 8/1/75 " 4(a)-10
4(a)-11 7/1/79 " 4(a)-11
4(a)-12 7/1/82 " 4(a)-12
4(a)-13 7/1/86 Form 10-K for fiscal year 4(a)-13
ended September 30, 1986
4(a)-14 10/1/88 Form 10-K for fiscal year 4(a)-14
ended September 30, 1989
4(a)-15 7/1/92 Form 10-K for fiscal year 4(a)-15
ended September 30, 1992
4(a)-16 7/1/93 Form 10-K for fiscal year 4(a)-16
ended September 30, 1993
</TABLE>
E-1
<PAGE> 49
<TABLE>
<CAPTION>
Sup. Ind.
Dated as of File Reference Exhibit
----------- -------------- -------
<S> <C> <C> <C>
4(a)-17 12/3/93 Form 10-K for fiscal year 4(a)-17
ended September 30, 1993
4(a)-18 11/1/96 Form 10-K for fiscal year 4(a)-18
ended September 30, 1997
4(c)-1 Bay Gas Indenture dated as of October 1, 1992 (incorporated by
reference to Exhibit 4(c) to Form 10-K for fiscal year ended
September 30, 1992)
4(c)-2 First Supplemental Indenture dated as of October 1, 1994
supplemental to Bay Gas Indenture (incorporated by reference
to Exhibit 4(c)-2 to Form 10-K for fiscal year ended September
30, 1995)
4(d) Promissory Note to the Utilities Board of the Town of
Citronelle dated May 13, 1993 (incorporated by reference to
Exhibit 4(d) to Form 10-K for fiscal year ended September 30,
1993)
10(d)-5 NNS Settlement Agreement between Koch Gateway Pipeline Company
and Mobile Gas Service Corporation dated March 26, 1998
(incorporated by reference to Exhibit 10(d)-5 to Form 10-K for
fiscal year ended September 30, 1998)
10(e)-3 Gas Sale and Purchase Contract between Coral Energy Resources,
L.P. as Seller and Mobile Gas Service Corporation as Buyer
dated as of January 1, 1997 (incorporated by reference to
Exhibit 10(e)-3 to Form 10-K for fiscal year ended September
30, 1997) (3)
10(f)-1 Agreement for Sale and Purchase of Gas - Mobile Plant dated
August 10, 1995 between Mobil Natural Gas Inc. and Mobile Gas
Service (incorporated by reference to Exhibit 10(f) to Form
10-K for fiscal year ended September 30, 1995) (3)
10(f)-2 Letter dated June 26, 1996 with consent dated July 31, 1996 to
assignment of Agreement for Sale and Purchase of Gas - Mobile
Plant to PanEnergy Trading and Market Services, L.L.C.
(incorporated by reference to Exhibit 10(f)-2 to Form 10-K for
fiscal year ended September 30, 1996)
10(g) Deferred Compensation Agreement with John S. Davis dated
January 26, 1996 (incorporated by reference to Exhibit 10(g)
to Form 8-K Current Report dated February 7, 1996)
10(g)-1 Supplemental Deferred Compensation Agreement with John S.
Davis dated December 10, 1999 (1)(2)
</TABLE>
E-2
<PAGE> 50
<TABLE>
<S> <C>
10(h) Transportation Agreement between Mobile Gas and Mobile Energy
LLC dated November 12, 1999 (3)
10(i) Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd.
Gas Storage Agreement dated February 26, 1992 (incorporated by
reference to Exhibit 10(i) to Form 10-K for fiscal year ended
September 30, 1992)
10(j) Directors/Officers Indemnification Agreement (incorporated by
reference to Exhibit 10(j) to Form 10-K for fiscal year ended
September 30, 1992)
10(j)-1 Form of Change of Control Agreement entered into as of
December 8, 1999 by and between EnergySouth, Inc. and the
Executive Officers of EnergySouth, Inc. and/or one or more of
its subsidiaries (1)(2)
10(k)-1 Amended and Restated Supplemental Deferred Compensation
Agreement with Walter L. Hovell, dated December 11, 1992
(incorporated by reference to Exhibit 10(k) to Form 10-K for
fiscal year ended September 30, 1992) (2)
10(k)-2 Amendment to Amended and Restated Supplemental Deferred
Compensation Agreement dated January 27, 1995 between the
Company and Walter L. Hovell (incorporated by reference to
Exhibit 10(k)-2 to Form 8-K Current Report dated January 27,
1995) (2)
10(l)-1 Bay Gas Agreement by and among Mobile Gas Service Corporation,
MGS Storage Services, Inc., MGS Energy Services, Inc. and Olin
Corporation, dated December 5, 1991 (incorporated by reference
to Exhibit 10(l) to Form 10-K for fiscal year ended September
30, 1992)
10(m)-1 Limited Partnership Agreement between MGS Storage Services,
Inc., as General Partner, and MGS Energy Services, Inc., as
Limited Partner (forming Bay Gas Storage Company, Ltd.), dated
December 5, 1991 (incorporated by reference to Exhibit 10(m)
to Form 10-K for fiscal year ended September 30, 1992)
10(m)-2 First Amendment to Limited Partnership Agreement dated as of
April 6, 1992 and Second Amendment to Limited Partnership
Agreement dated as of September 12, 1994 (incorporated by
reference to Exhibit 10(m)-2 to Form 10-K for fiscal year
ended September 30, 1994)
10(n) Cavity Development and Storage Agreement between Olin
Corporation and Bay Gas Storage Company, Ltd., dated January
14, 1992 (incorporated by reference to Exhibit 10(n) to Form
10-K for fiscal year ended September 30, 1992)
10(o)-1 Transportation Agreement between Mobile Gas Service
Corporation and Tuscaloosa Steel Corporation dated as of May
15, 1995 (incorporated by reference to Exhibit 10(o) to Form
10-K for fiscal year ended September 30, 1995) (3)
</TABLE>
E-3
<PAGE> 51
<TABLE>
<S> <C>
10(o)-2 Amendment dated August 23, 1996 to Transportation Agreement
between Mobile Gas Service Corporation and Tuscaloosa Steel
Corporation (3)
10(q) Guaranty Agreement by Mobile Gas Service Corporation, dated as
of October 1, 1992, relating to Indenture of Bay Gas Storage
Company, Ltd. (incorporated by reference to Exhibit 10(q) to
Form 10-K for fiscal year ended September 30, 1992)
10(r) Amended and Restated Stock Option Plan of EnergySouth, Inc.
(incorporated by reference to Appendix A to definitive proxy
statement dated December 17, 1998) (2)
10(s) Mobile Gas Service Corporation Incentive Compensation Plan
(incorporated by reference to Exhibit B to definitive proxy
statement dated December 21, 1992) (2)(4)
10(t) Agreement for Purchase and Sale of Assets by and between The
Utilities Board of the Town of Citronelle and Mobile Gas
Service Corporation dated January 28, 1993 (incorporated by
reference to Exhibit 10(t) to Form 10-K for fiscal year ended
September 30, 1993)
10(u) Revolving Credit Agreement dated September 30, 1999 by and
among EnergySouth, Inc. as Borrower, AmSouth Bank, N.A. as
Agent, and AmSouth Bank, N.A., Regions Bank, Whitney National
Bank, South Alabama Bank, Southtrust Bank, N.A., and
Commonwealth National Bank as Lenders (1)
10(x) Letter dated October 7, 1994 from Mobile Gas Service
Corporation to John S. Davis confirming terms of employment
(incorporated by reference to Exhibit A to Form 8-K current
report filed November 2, 1994) (2)
10(z) Mobile Gas Service Corporation Non-Employee Directors Deferred
Fee Plan (incorporated by reference to Exhibit 10(z) to Form
8-K Current Report dated January 27, 1995) (2)(4)
18 Letter regarding change in Accounting Principle (incorporated
by reference to Exhibit 18 to Form 10-Q Quarterly Report dated
February 12, 1999)
21 Subsidiaries of Registrant and Partnerships in which
Registrant Owns an Interest (1)
23 Consent of Deloitte & Touche LLP (1)
27 Financial Data Schedule (1)
</TABLE>
E-4
<PAGE> 52
(1) Filed herewith.
(2) Management contract or compensatory plan or arrangement.
(3) Confidential portions of this exhibit have been omitted and previously
filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment made in accordance with Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as amended.
(4) Amended to use Company Common Stock instead of Mobile Gas common stock
effective February 2, 1998.
E-5
<PAGE> 1
EXHIBIT 10(g)-1
SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, made and entered into this the 10th day of December,
1999, and effective as of the date hereof (the "Effective Date"), between
ENERGYSOUTH, INC., an Alabama corporation (the "Company"), and JOHN S. DAVIS
(the "Employee").
ARTICLE I
DEFINITIONS
1.1 Accrued Benefit. "Accrued Benefit" shall mean, as of any date of
determination, the Benefit computed under Section 3.1 of Article III hereof on
the basis of the applicable components of the formulae of the Agreement, the
Retirement Plan, and the Deferred Compensation Agreement, as of that date.
1.2 Agreement. "Agreement" shall mean this Supplemental Deferred
Compensation Agreement, as amended.
1.3 Beneficiary. "Beneficiary" shall mean the person or persons named
by the Employee in accordance with Section 1.05 of the Retirement Plan to
receive payments after the Employee's death.
1.4 Benefit. "Benefit" shall have the meaning set forth in Section 3.1
hereof.
<PAGE> 2
1.5 Benefit Limitations. "Benefit Limitations" shall mean (i) the limit
on compensation that can be taken into account in calculating qualified plan
benefits under Section 401(a)(17) of the Code; and (ii) the maximum benefit
limits under Section 415 of the Code.
1.6 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.7 Deferred Compensation Agreement. "Deferred Compensation Agreement"
shall mean that certain Deferred Compensation Agreement dated January 26, 1996,
between the Company and the Employee.
1.8 ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
1.9 Retirement Plan. "Retirement Plan" shall mean The Employees'
Retirement Plan of Mobile Gas Service Corporation, as amended.
ARTICLE II
PURPOSE
2.1 Purpose of Agreement. The purpose of this Agreement is to provide
benefits to the Employee which would have been payable to the Employee under the
Retirement Plan, as
2
<PAGE> 3
supplemented by the Deferred Compensation Agreement, but for the Benefit
Limitations.
2.2 Nature of Agreement. This Agreement is divisible into two
components: (a) that component which provides for benefits in excess of the
applicable limitations on benefits under Section 415 of the Code, and which is
intended to constitute an unfunded excess benefit plan under Section 3(36) of
Title I of ERISA; and (b) that component which provides for benefits in excess
of applicable compensation limits under Section 401(a)(17) of the Code, and
which is intended to be an unfunded deferred compensation plan for the Employee
who is a member of a select group of management or highly compensated employees
within the meaning of Sections 201(1), 301(a)(3), and 401(a)(1) of Title I of
ERISA.
ARTICLE III
BENEFIT
3.1 Amount of Benefit. If pursuant to the terms and provisions of
Section 2 of the Deferred Compensation Agreement the Employee begins receiving
either a Retirement Benefit, as defined in Section 1(d) of the Deferred
Compensation Agreement, or a Severance Benefit, as defined in Section 1(f) of
the Deferred Compensation Agreement, the Employee shall receive a supplemental
Retirement Benefit or a supplemental Severance Benefit, as the case may be (a
"Benefit"), under this Agreement equal to the difference between (a) and (b)
below:
(a) the Retirement Benefit or Severance Benefit, as the case may
be, that would have
3
<PAGE> 4
been paid under the Deferred Compensation Agreement, had such
benefit not been limited by the Benefit Limitations, and
(b) The Retirement Benefit or Severance Benefit, as the case may
be, that is payable to the Employee under the Deferred
Compensation Agreement.
3.2 Payment of Benefit. Except as provided in Section 3.3 of this
Article III, the Benefit determined pursuant to the provisions of Section 3.1
hereof shall be paid in the same form and manner as the Retirement Benefit or
the Severance Benefit, as the case may be, is paid under the Deferred
Compensation Agreement pursuant to the provisions of Sections 2(a), (b), and (c)
of the Deferred Compensation Agreement.
3.3 Distribution of Accrued Benefit.
(a) Notwithstanding anything in the Agreement to the contrary, the
Company may distribute, or cause to be distributed, to the Employee (or, after
his death, to his Beneficiary) all or part of the Accrued Benefit of the
Employee (or Beneficiary) under the Agreement as of a specified date. The
distribution may be made at any time deemed appropriate by the Company. The
benefit may be distributed in cash or in kind (including, without limitation,
distribution of one or more annuity contracts). The Company shall indicate in
writing that the distribution is intended to be a distribution of the Employee's
(or Beneficiary's) Accrued Benefit under the Agreement. The Company may take
into account the tax consequences of the distribution when computing the amount
to be distributed under this Section 3.3.
4
<PAGE> 5
(b) In the event of a distribution under Section 3.3(a), the
Accrued Benefit of the Employee (or Beneficiary) under the Agreement shall be
reduced by the Accrued Benefit distributed, and the Company shall have no
further liability with respect to the Accrued Benefit distributed. The Company
will reduce any Benefit otherwise payable under this Agreement by the Accrued
Benefit distributed under Section 3.3(a). To the extent that a distribution is
made in a lump sum cash payment, the actuarial assumptions then in effect under
the Retirement Plan shall be used to determine the present value of the
Employees's (or Beneficiary's) Accrued Benefit under this Agreement.
(c) The Company has the sole discretion to determine when and if a
distribution is to be made under Section 3.3(a), and to determine the amount of
any distribution, and neither the Employee nor the Beneficiary shall have any
right to receive a distribution under Section 3.3(a).
ARTICLE IV
ADMINISTRATION OF AGREEMENT
4.1 Company Authority. The Agreement shall be administered by the
Company, which shall have the authority, duty and power to interpret and
construe the provisions of the Agreement in its sole and absolute discretion.
The Company shall have the duty and responsibility of maintaining records,
making the requisite calculations, and disbursing the payments hereunder. The
Company's interpretations, determinations, regulations, and
5
<PAGE> 6
calculations shall be final and binding on all persons and parties concerned.
4.2 Reliance. The Company shall be entitled to rely conclusively upon
all tables, valuations, certificates, opinions and reports furnished by any
actuary, accountant, controller, counsel, or other person employed or engaged by
the Company with respect to the Agreement.
4.3 Claims Procedure. The procedures in this Section 4.3 are intended
to comply with Section 503 of ERISA and Section 2560.503-1 of the Department of
Labor regulations and pertain to claims by the Employee or a Beneficiary for
Benefits under this Agreement, consideration of such claims, and review of claim
denials. The Employee or a Beneficiary (referred to in this Section 4.3 and in
Section 4.4 of this Article IV as "claimants" or, individually, as a "claimant")
shall be entitled to file with the Company a written claim for Benefits under
the Agreement. The Company will review the claim, and, if the claim is denied,
in whole or in part, the Company will furnish the claimant with a written notice
of denial of the claim within 90 days after the Company's receipt of the claim,
or within 180 days after such receipt, if special circumstances require an
extension of time. If special circumstances require an extension of time,
written notice of the extension, and the special circumstances requiring such
extension, shall be furnished to the claimant during the initial 90-day period.
The written notice of denial shall contain the following:
(a) Specific reasons for the denial;
(b) Specific reference to the pertinent provisions of the
Agreement, the Retirement Plan, and/or the Deferred
Compensation Agreement on which the denial is based;
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(c) A description of any additional material or
information necessary for the claimant to perfect the
claim, and an explanation of why the material or
information is necessary; and
(d) An explanation of the claims review procedure.
The claimant may request a review of the claim by an appeals committee appointed
by the Company. The review may be requested in writing at any time within 90
days after the claimant receives written notice of the denial of his claim. The
appeals committee shall afford the claimant a full and fair review of the
decision denying the claim and, if so requested, shall:
(a) Permit the claimant to review any documents that are
pertinent to the claim;
(b) Permit the claimant to submit to the committee issues
and comments and writing; and
(c) Afford the claimant an opportunity to meet with a
quorum of the appeals committee as part of the review
procedure.
The appeals committee's decision on review shall be made in writing and shall be
issued within 60 days following receipt of the claimant's request for review.
The period for decision may be extended to a date not later than 120 days after
such receipt if the committee determines that special circumstances require an
extension. If special circumstances require an extension of time, written notice
of the extension, and the special circumstances requiring such extension, shall
be furnished to the claimant during the initial 60-day period. The decision on
review shall include specific reasons for the decision and specific references
to the provisions of the Agreement, the Retirement Plan, and/or the Deferred
Compensation Agreement on which the decision of the committee is based.
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4.4 Exhaustion of Remedies. No claimant shall institute any action or
proceeding in any state or federal court of law or equity or before any
administrative tribunal or arbitrator for a claim for Benefits under the
Agreement until the claimant has first exhausted the procedures for review of
claims set forth in Section 4.3 of this Article IV.
ARTICLE V
GENERAL PROVISIONS
5.1 Anti-Alienation. Neither the Benefits payable under this Agreement
nor the right to receive future Benefits under the Agreement may be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any
charge or legal process; no interest or right to receive a Benefit may be taken,
either voluntarily or involuntarily, for the satisfaction of the debts of, or
other obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
5.2 Unfunded Agreement. The Agreement at all times shall be considered
entirely unfunded both for purposes of the Code and for purposes of Title I of
ERISA. All amounts payable in accordance with this Agreement shall constitute a
general unsecured obligation of the Company. Such amounts, as well as any
administrative costs relating to the Agreement, shall be paid out of the general
assets of the Company. Neither the Employee, nor any Beneficiary, nor any other
person shall have any interest in any particular assets of the Company by reason
of the right to receive a Benefit under the Agreement, and to the extent the
Employee, a Beneficiary, or
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any other person acquires a right to receive benefits under this Agreement, such
right shall be no greater than the right of any general unsecured creditor of
the Company. The Agreement constitutes a mere promise by the Company to make
payments to the Employee or Beneficiaries in the future.
5.3 Agreement Not a Contract of Employment. This Agreement is not a
contract of employment, and the terms of the Employee's employment shall not be
affected in any way by this Agreement. The Agreement shall not be construed as
conferring any legal rights upon the Employee for a continuation of employment,
nor shall it interfere with the rights of the Company to discharge the Employee
and to treat the Employee without regard to the effect which such treatment
might have upon the Employee under this Agreement.
5.4 Coordination with other Retirement Plans. Benefits payable under
the Agreement will not be considered compensation for purposes of other
retirement or benefit plans maintained by the Company.
5.5 Binding Effect. The Employee and all persons who may have or claim
any right by reason of the Employee being a party to this Agreement shall be
bound by the terms of this Agreement and all amendments hereto.
5.6 Incompetency. In the event that the Company shall find that the
Employee or a Beneficiary is unable to care for such Employee's or Beneficiary's
affairs because of illness or
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accident or any other reason, the Company may, unless claim shall have been made
therefor by a duly appointed guardian, conservator, or other legal
representative, direct that any amounts payable under this Agreement be paid to
the Employee's or Beneficiary's spouse, child, parent or other blood relative,
or to a person with whom the Employee or Beneficiary resides, or to a legal
guardian, and any such payments so made shall be a complete discharge of the
liabilities of the Company under this Agreement as to such payments.
5.7 Withholding Taxes. The Company shall have the right to deduct from
each payment to be made under this Agreement any required withholding taxes.
5.8 Construction; Governing Law. The Agreement is intended to
constitute both an excess benefit arrangement under Section 3(36) of Title I of
ERISA and an unfunded deferred compensation arrangement maintained for the
Employee who is a member of a select group of management or highly-compensated
employees within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of
Title I of ERISA, and all rights under this Agreement shall be governed by
ERISA. Subject to the preceding sentence, the Agreement shall be construed,
regulated and administered under the laws of the State of Alabama, without
giving effect to conflict-of-law principles, to the extent such laws are not
superseded by applicable federal law.
5.9 Severability. The illegality of any particular provision of this
Agreement shall not affect the other provisions hereof, and the Agreement shall
be construed in all respects as if such invalid provision were omitted.
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5.10 Headings. The headings and subheadings in the Agreement have been
inserted for convenience of reference only, and are to be ignored in any
construction of the provisions thereof.
5.11 Gender and Number. Whenever any words are used herein in the
masculine, feminine or neuter gender, they shall be construed as though they
were also used in another gender in all cases where such would apply, and
whenever any words are used herein in the singular or plural form, they shall be
construed as though they were also used in another form in all cases where they
would so apply.
5.12 Binding Effect and Assignability. This Agreement is binding on and
is for the benefit of the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by the Company
(except to any subsidiary or affiliate) or by Employee.
5.13 Successors. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform. As used in this Agreement,
"Company" shall mean the company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
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5.14 Entire Agreement. This Agreement contains the entire agreement and
understanding between Company and the Employee with respect to the subject
matter as set forth in Section 2.1 of Article II hereof, and there are no
agreements, understandings, or representations between the Company and the
Employee as to said subject matter other than those set forth herein. This
Agreement may not be altered, enlarged, modified, or changed except by a writing
executed by the Company and the Employee.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by affixing their hands and seals to this Agreement, on the date and
year first above written.
ENERGYSOUTH, INC.
By: /s/ Charles P. Huffman
---------------------------------------------
As its Vice President
-------------------------------------
[AFFIX CORPORATE SEAL]
ATTEST:
/s/ G. Edgar Downing, Jr.
- ----------------------------------
As its Secretary
---------------------------
EMPLOYEE
/s/ John S. Davis
----------------------------
JOHN S. DAVIS
12
<PAGE> 1
EXHIBIT 10(h)
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE FREEDOM OF INFORMATION ACT.
MOBILE GAS SERVICE CORPORATION
TRANSPORTATION AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of this
12th day of November, 1999, by and between MOBILE GAS SERVICE CORPORATION,
an Alabama Corporation, with a mailing address of P. O. Box 2248, Mobile,
Alabama 36652, herein called "Mobile Gas," and MOBILE ENERGY LLC, a Delaware
limited liability company, with a mailing address of 650 Dundee Road, Suite 350,
Northbrook, Illinois 60062, herein called "Customer." Capitalized terms used in
this Agreement shall have the meanings given to such terms in the body of this
Agreement or in EXHIBIT B attached hereto and made a part hereof, as the case
may be.
Whereas, Customer desires to use natural gas for the operation of the
Customer's steam and power generation facility (the "Customer's Facility") to be
constructed and located adjacent to the International Paper Company ("IP") plant
on Telegraph Road in Mobile, Alabama; and
Whereas, Mobile Gas operates a system (the "Mobile Gas System") for the
distribution of natural gas from natural gas transmission pipelines and
processing plants and Customer or its designees have such gas available for
redelivery to the Customer's facility.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I - TRANSPORTATION SERVICE
1.1 Subject to the terms and conditions of this Agreement, Mobile Gas agrees to
receive into the Mobile Gas System at the Point of Delivery and transport and
deliver on a firm basis to the Point of Redelivery a total quantity of Gas up to
54,000 MMBtu per Day (the "Contract Demand"), but not, unless otherwise agreed
by the parties, to exceed 2,250 MMBtu per hour. The Point of Delivery shall be
at the Mobile Gas interconnection with Koch Gateway Pipeline Company
(hereinafter "Koch") at Whistler Junction (SLN 2460). Mobile Gas will tender for
delivery to Customer at the Point of Redelivery quantities of Gas
thermally-equivalent to those delivered to Mobile Gas by Customer (or for the
account of Customer) at the Point of Delivery. Customer agrees to pay Mobile Gas
the transportation rate herein provided for all Gas transported and delivered to
Customer at the Point of Redelivery. The "Point of Redelivery" shall be the
Customer's flange downstream of the Mobile Gas metering station on Customer's
premises.
1.2 The effective RATE for such transportation service (including minimum
billings with respect to the Contract Demand) is as specified in EXHIBIT A which
is attached
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hereto and made part of this Agreement. This is a special negotiated rate.
Mobile Gas shall be the sole transporter delivering Gas to the Customer's
Facility during the term of this Agreement, subject to the right of Customer to
use alternative means of transportation to the extent reasonably necessary to
cover or otherwise mitigate any force majeure or failure by Mobile Gas (whether
excused hereunder or not) to transport and deliver the Contract Demand to the
Customer's Facility for the duration of such force majeure or failure.
1.3 Customer may increase the Contract Demand once every twelve months by a
written request from the Customer and written approval by Mobile Gas; provided
that, Mobile Gas agrees to approve any such request to the extent uncommitted
capacity is then available on the Mobile Gas System. In addition to and without
limiting *** rights under *** shall have the right to *** by a written notice
from the *** to ***; provided that, any such *** shall not *** and the *** shall
not *** under this Agreement.
1.4 All natural gas transported under this Agreement shall be used at the
Customer's Facilities. Customer shall not allow any other entity to utilize the
gas delivered pursuant to this Agreement. Failure to comply with this provision
shall be deemed to constitute a material breach of this Agreement by Customer.
ARTICLE II - TERM OF AGREEMENT
2.1 The Customer's Facility shall be ready for performance testing on or before
March 1, 2001, but not before January 1, 2001 for purposes of this Agreement.
This date may be extended due to a force majeure event; provided, however, said
force majeure event shall not delay the testing of the plant for more than 18
months. Customer shall provide Mobile Gas 60 days advance written notice of the
estimated date on which Customer believes that it will first need Gas for
performance testing of the Customer's Facility. The "Test Gas Period" shall be
defined as the period beginning on the date Gas is first delivered to the
Customer's Facility pursuant to this Agreement and ending on the first day of
the month following the earlier of (i) the 90th day thereafter, as such 90th day
may be extended due to the occurrence during the performance testing of a force
majeure event (with such extension not to exceed 90 additional days in the
aggregate) or (ii) the date on which Customer commences the sale on a regular
basis of commercial quantities of electric power generated at the Customer's
Facility, excluding sales in connection with performance testing of the
Customer's Facility. During the Test Gas
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Period, Mobile Gas shall bill and Customer shall pay the transportation rate
consistent with the rate for transportation service specified in EXHIBIT A on
the volumes of Gas delivered to the Customer's Facility, and minimum billing
shall not be applicable to the Test Gas Period or any Gas delivered during the
Test Gas Period. During the Test Gas Period, Customer will not be permitted to
transport more than the Contract Demand. Beginning on the first day of the
Primary Term the effective rate for transportation service specified in EXHIBIT
A, including minimum billing as provided in EXHIBIT A, will apply. Customer
shall provide Mobile Gas written notification of its intent to commence
commercial operations at least five business days prior to the end of the Test
Gas Period.
2.2 The term of this Agreement consists of (i) the Test Gas Period plus (ii) a
primary term of *** (the "Primary Term") which shall commence on the last day of
the Test Gas Period. Unless earlier terminated, the term of this Agreement shall
be automatically extended for an additional *** term at the expiration of the
Primary Term and for successive additional *** terms thereafter, unless either
party shall notify the other in writing not less than 90 days prior to the
expiration date of the Primary Term or of any such additional *** term, as the
case may be, of its intention to terminate this Agreement.
2.3 Notwithstanding the provisions of Section 2.2, the provisions of this
Agreement that by their sense and context are applicable to the parties' rights
and obligations under this Agreement prior to the Test Gas Period, shall be
effective as of the effective date hereof. The termination of this Agreement
shall not relieve either party of its obligations and liabilities hereunder (i)
with respect to the period prior to termination or its actions prior to
termination or (ii) which arise as a result of such termination.
2.4 All of Customer's obligations under this Agreement are contingent upon
Customer successfully obtaining financing for the Customer's Facility on or
before ***. Customer shall notify Mobile Gas within fifteen (15) days of the
date it obtains financing for the Customer's Facility ("Financing Date"). All
terms and conditions of financing for the Customer's Facility, and the
acceptability or non-acceptability thereof, shall be at Customer's sole
discretion. Mobile Gas shall not be obligated to provide transportation services
under this Agreement earlier than 12 months from the Financing Date.
2.5 This Agreement may only be terminated prior to the expiration of the initial
term or a renewal term hereof, if any, as the case may be:
(a) by Mobile Gas, (i) at any time prior to the
payment of such amount by Customer, if Customer fails to pay any amount
within forty-five (45) days after the same becomes due under Section
5.3 or (ii) after occurrence of any other material breach by Customer
in the performance of its obligations hereunder and the continuance of
such breach forty-five (45) days after written notice by Mobile Gas to
Customer of such breach and demand by Mobile Gas that Customer cure
same, or (iii) at any time after March 16, 2000, if Customer has
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not provided notice of obtaining acceptable financing to Mobile Gas, as
provided for in Section 2.4.
(b) by Customer, (i) at any time prior to the payment of such
amount by Mobile Gas, if Mobile Gas fails to pay any amount within
forty-five (45) days after the same becomes due under Section 5.3 or
(ii) after occurrence of any material breach by Mobile Gas in the
performance of its obligations hereunder and the continuance of such
breach forty-five (45) days after written notice by Customer to Mobile
Gas of such breach, or (iii) at any time after 140 days from the date
of this Agreement, if Mobile Gas has failed to provide Customer a copy
of the Alabama Public Service Commission's final, non-appealable order
approving this Agreement.
(c) by ***, upon ***, in the event ***, for any reason,
including, but not limited to *** but excluding ***. *** shall not be
permitted to terminate this Agreement under this Section 2.5(c) on
account of ***. *** notice of termination under this Section 2.5(c) may
***.
(d) by ***, upon ***, if at any time and for any reason ***
(i) *** or (ii) ***.
2.6 If this Agreement is terminated by: (i) Customer for any reason other than
an unexcused service interruption by Mobile Gas; or (ii) by Mobile Gas pursuant
to 2.5 (a) (i) or (ii), before the conclusion of the eleventh contract year of
the Primary Term, Customer shall be obligated to pay Mobile Gas an Exit Fee, as
determined in accordance with Exhibit C attached hereto and made a part of this
Agreement.
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ARTICLE III - MEASUREMENT AND QUALITY
3.1 The volumes of natural gas delivered hereunder shall be measured at an
equivalent pressure base of 14.73 pounds per square inch absolute (psia) and an
assumed atmospheric pressure of 14.7 psia, and at a temperature base of 60
degrees Fahrenheit. The volume of natural gas determined hereunder may be
adjusted to give effect to the deviation of such gas from Boyle's Law in
accordance with standard procedure.
3.2 The Gas delivered by Customer to Mobile Gas and the Gas redelivered by
Mobile Gas to Customer pursuant to this Agreement shall be of merchantable
quality, and:
(a) Shall not have a water content in excess of seven (7) pounds
of water per million (1,000,000) cubic feet of gas measured at
a pressure base of 14.73 psia and at a temperature base of 60
degrees Fahrenheit, as determined by dew point or other
moisture measuring equipment in general use in the industry
and mutually acceptable to the contracting parties.
(b) Shall not contain more than one (1) grain of hydrogen sulfide
per one hundred (100) cubic feet as determined by quantitative
methods in general use in the industry and mutually acceptable
to both parties.
(c) Shall not contain in excess of:
(i) Three percent (3.0%) by volume carbon dioxide.
(ii) Two percent (2.0%) by volume oxygen.
(d) The Gas shall be commercially free from dust, gum, gum-forming
constituents or other liquid or solid matter which might
become separate from the Gas in the course of transportation
through pipelines or cause damage to Customer's Facility.
ARTICLE IV - POINTS OF DELIVERY AND REDELIVERY
4.1 Gas shall be tendered by Customer's Transporter to Mobile Gas for
transportation hereunder at the Point of Delivery specified in EXHIBIT A.
Customer's Transporter shall be responsible for providing all facilities
required to deliver Gas to the Point of Delivery at a minimum delivery pressure
of 550 psig. *** shall not *** to the extent that *** and *** complies with ***
provided ***. Both parties recognize that the operations of Customer's
Transporter may result in gas being delivered at less than
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550 psig from time to time and that when that occurs, Mobile Gas will use its
best efforts to continue to deliver Customer's Gas at sufficient volumes and
pressures, in an effort to enable Customer to continue its operations. Nominated
deliveries of Gas by Customer's Transporter to Mobile Gas for the account of
Customer at the Point of Delivery shall be credited to Customer's account with
Mobile Gas on a daily basis.
4.2 The "Minimum Redelivery Pressure" at the Point of Redelivery shall be 500
psig or such other minimum delivery pressure, not to exceed 500 psig, as
Customer may from time to time designate by written notice to Mobile Gas;
provided that, Gas shall be deemed to have been delivered at the Minimum
Redelivery Pressure to the extent such Gas is delivered at the Point of
Redelivery at a lower pressure and such lower pressure does not impact
Customer's ability to operate the Customer's Facility. Maintenance by Mobile Gas
of Gas delivery pressure at the Point of Redelivery at a minimum of 500 psig and
a maximum of 575 psig at the Point of Redelivery shall be deemed adequate to
facilitate redelivery of Gas to Customer at the Delivery Point for purposes of
this Agreement. In the event Mobile Gas is unable to maintain Gas delivery
pressure at the Point of Redelivery at a minimum of 500 psig, Mobile Gas will
notify Customer as soon as practicable as to all measures which Mobile Gas will
undertake to eliminate and/or mitigate such inability, and will consider and
respond to all input received from Customer in a timely manner concerning such
elimination and/or mitigation measures.
4.3 Customer shall own and shall be solely responsible for the design,
installation, construction, operation and maintenance of its pipeline from the
Point of Redelivery to the Customer's Facility. Mobile Gas shall own and shall
be solely responsible for the design, installation, construction, operation and
maintenance of all facilities commencing at the Point of Delivery and
terminating at the Point of Redelivery, including, without limitation, all
facilities placed by Mobile Gas on the below referenced easements to be granted
by Customer to Mobile Gas. Mobile Gas shall at its expense (and without cost or
reimbursement from Customer) design, install and construct all facilities
commencing at the Point of Delivery and terminating at the Point of Redelivery
as may be necessary to enable it to redeliver Gas to Customer at the Point of
Redelivery at the Contract Demand volume commencing on the date first needed by
Customer for performance testing of Customer's Facility as contemplated by
Section 2.1, including all necessary upgrading of Mobile Gas's existing
facilities and the addition of all necessary measurement and regulation
facilities. Customer, without additional consideration, shall grant to Mobile
Gas an easement, in form and substance reasonably acceptable to both Parties at
a mutually acceptable location on Customer's property, for the installation,
construction, operation and maintenance by Mobile Gas of a metering station,
including measurement and regulation equipment, necessary piping and other
appurtenant facilities, above and below ground, for the delivery, measurement
and regulation of Gas at the Point of Delivery. Customer, without additional
consideration, shall also grant to Mobile Gas an easement, in
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form and substance reasonably acceptable to both parties, for a pipeline across
Customer's Facility site from the Mobile Gas System. Mobile Gas shall be solely
responsible for all activities relating to the use of such easements by Mobile
Gas or any of Mobile Gas's employees, agents or contractors.
ARTICLE V - BILLING
5.1 On or before the seventh (7th) business day of each calendar month Mobile
Gas shall render to Customer a statement of the amount of Gas transported and
delivered hereunder by Mobile Gas to Customer (or Customer's designee) at the
Point of Redelivery during the preceding calendar month, and shall also render a
bill for all Gas so transported and delivered. Customer shall make payment to
Mobile Gas at Mobile Gas office, P. O. Box 2248, Mobile, Alabama 36652 by the
25th calendar day following the end of such preceding calendar month. Should
Customer fail to pay any amount due to Mobile Gas when the same is due, and such
failure to pay continues for 15 days, other than due to a good faith dispute,
Mobile Gas may suspend deliveries of Gas hereunder until such amount is paid,
and the exercise of such right shall be in addition to any and all other
remedies available to Mobile Gas.
5.2 Within thirty days after the end of each Contract Year, Mobile Gas shall
render to Customer a statement of the amount, if any, by which the aggregate
billings by Mobile Gas to Customer during the preceding Contract Year with
respect to the Whistler Junction Contract Demand were less than the minimum
annual bill specified in Paragraph 2 of EXHIBIT A (the "Minimum Bill Balance"),
and if there exists a Minimum Bill Balance, shall also render a bill for such
amount. Customer shall make payment to Mobile Gas of the Minimum Bill Balance,
if any, within twenty days after the receipt of such bill, unless a good faith
dispute exists in regard to such sum.
5.3 In the event that either party fails to pay any amounts owing by such party
to the other party hereunder when due, interest shall accrue and be payable on
all unpaid amounts from the date due until paid at a rate of interest equal to
the lesser of (i) 2% per annum over the rate of interest reported as the "prime
rate" in the "Money Rates" section of The Wall Street Journal or any successor
thereto, as such rate may change from time to time, or (ii) the maximum rate of
interest permitted by applicable law. In the event of a good faith dispute as to
any sum due hereunder, the amount in dispute shall be due following resolution
of such dispute as hereinafter provided, the parties shall work to resolve such
dispute as rapidly as feasible, and any sums not in dispute shall be paid when
due. Upon resolution of the relevant dispute, any sums due from either party to
the other shall be paid within 15 days after the resolution of such dispute. Any
disputed amount which was not paid and is later determined to be due shall be
subject to interest charges at the aforesaid rate from the date such amount
would originally have been due if not
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disputed, and any disputed amount which was paid and is later determined not to
be due shall be refunded with interest at the aforesaid rate from the date
originally paid until refunded.
ARTICLE VI - FORCE MAJEURE
6.1 In the event a party is rendered unable, wholly or in part, by force majeure
to carry out its obligations under this Agreement (other than its payment
obligations), such party shall give notice and reasonably full particulars of
such force majeure in writing, or by FAX, to the other party within a reasonable
time after the occurrence of the cause relied on, and the obligations of the
party giving such notice, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but for no
longer period, and such cause shall so far as possible be remedied with all
reasonable dispatch. The term, "force majeure," as employed herein shall mean
acts of God; strikes, lockouts, or other industrial disturbances; conditions
arising from a change in governmental laws, orders, rules or regulations; acts
of public enemy; wars; blockades; insurrections; riots; epidemics; landslides;
lightning; earthquakes; fires; storms; floods; washouts; arrests and restraints
of governments and people; civil disturbances; explosions; breakage or accident
to plant, facilities, machinery, equipment or lines of pipe; unplanned or forced
outages (shutdowns) of plant, facilities, machinery, equipment or lines of pipe
for inspection, maintenance or repair; the necessity for making repairs, tests
or alterations to equipment, machinery or lines of pipe; loss, interruption or
failure of electricity, gas, water or other utilities provided by third parties;
freezing of wells or lines of pipe; partial or entire failure of wells,
processing or gasification and gas manufacturing facilities; and any other
causes, whether of the kind herein enumerated or otherwise, not within the
control of the party claiming suspension, and which by the exercise of due
diligence, such party is unable to prevent or overcome. Such term shall likewise
include: (a) those instances where either Mobile Gas or Customer is required to
obtain servitudes, rights-of-way, grants, permits or licenses to enable such
party to fulfill its obligations under this Agreement; the inability of such
party in acquiring, at reasonable costs, and after the exercise of reasonable
diligence, such servitudes, rights-of-way, grants, permits or licenses, and (b)
those instances where either Mobile Gas or Customer is required to furnish or
obtain equipment, parts, materials and supplies for the purpose of constructing
or maintaining facilities or is required to secure permits or permissions from
any governmental agency to enable such party to fulfill its obligations under
this Agreement; the inability of such party to acquire, or the delays on the
part of such party in acquiring, at reasonable costs, and after the exercise of
reasonable diligence, such equipment, parts, materials and supplies, permits and
permissions. Force majeure shall not include failure of gas supply due to
pricing considerations.
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6.2 It is understood and agreed that the settlement of strikes or lockouts shall
be entirely within the discretion of the party having the difficulty, and that
the above requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes or lockouts by
acceding to the demands of the opposing party when such course is inadvisable in
the discretion of the party having the difficulty.
ARTICLE VII - LAW GOVERNING
7.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of Alabama.
ARTICLE VIII - ARBITRATION
8.1 It is agreed, as a severable and independent arbitration agreement
separately enforceable from the remainder of this Agreement, that in the event
Mobile Gas and Customer are unable to amicably resolve any dispute or difference
arising under or out of, in relation to or in any way connected with this
Agreement (whether contractual, tortious, equitable, statutory or otherwise, and
including any dispute as to the construction, existence, validity,
interpretation, enforceability, amendment or breach of this Agreement), all such
disputes or differences, upon the election of Mobile Gas or Customer, shall be
finally and exclusively resolved by binding arbitration in Mobile, Alabama, or
such other location mutually agreed to by Mobile Gas and Customer, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
then in effect (the "AAA Rules"), except as provided hereinafter. Neither party
hereto shall be obligated to arbitrate any claim for injunctive relief from a
court required in order to prevent irreparable harm to such party; provided,
however, that any dispute with respect to which such claim for injunctive relief
has been asserted shall be subject to arbitration promptly following the grant
or denial of such requested injunctive relief. Judgment upon any arbitration
award may be entered and execution had in any court having jurisdiction thereof
or application may be made to such court for a judicial acceptance of the
decision and an order of enforcement.
8.2 The party desiring arbitration shall give written notice to that effect to
the other party to such dispute by certified mail, return receipt requested,
notifying such party of a dispute to be arbitrated hereunder and expressly
referencing this Section 8.2 of this Agreement. Such notice shall also specify
the name, address, telephone number and telecopy number of the person designated
to act as arbitrator on behalf of the party sending such notice. Within 15 days
after receipt of such notice, the party receiving such notice shall give written
notice specifying the name, address, telephone number, and telecopy number of
the person designated to act as arbitrator on its behalf. The two (2)
arbitrators so selected by the respective parties
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<PAGE> 10
(or selected by the American Arbitration Association office as provided below)
shall confer and select a third arbitrator to act as the neutral arbitrator
under the AAA Rules within 15 days after notice is given of the selection of the
second arbitrator. If either party fails to notify the other party of the
arbitrator selected by it within 15 days after receiving notice of the
arbitrator selected by the other party, of if the two (2) selected arbitrators
fail to select a third arbitrator within 15 days after notice is given of the
selection of the second arbitrator, then such second arbitrator or third
arbitrator, as the case may be, shall be selected, upon the application of any
party or its arbitrator, by the American Arbitration Association office in
Atlanta, Georgia, within ten days of the receipt of such application. Any
arbitrator selected by the American Arbitration Association office shall be
required to meet the same qualifications, and shall be subject to the same
disclosure and disqualification requirements and procedures, as a neutral
arbitrator under the AAA Rules. The panel of arbitrators so appointed shall
promptly meet and, within 60 days after such appointment of the panel of
arbitrators, (i) permit such depositions of such party as the arbitrators deem
appropriate, (ii) receive written statements of each party, and (iii) hold any
hearings necessary to obtain documents or other information to decide the
matter. Within 30 days following receipt of all such documents and other
information, the arbitrators shall decide and announce their decision concerning
the dispute. Any decision in which a majority of the arbitrators concur shall be
binding and conclusive upon the parties. The arbitrators shall not have
authority to award exemplary or punitive damages. Each party shall bear the
compensation and expenses of its own legal counsel, witnesses and employees and
of any arbitrator that it or the American Arbitration Association office has
selected to act on its behalf. Except as provided above, the cost of
arbitration, including the fees of the third arbitrator, shall be borne by the
losing party, unless the arbitrators decide otherwise. If the arbitrators
determine that a party has acted without substantial justification in the
arbitration, the arbitrators may require such party to bear all or any part of
the compensation and expenses of the other party's legal counsel, witnesses and
arbitrator.
ARTICLE IX - NOMINATION PROCEDURE
9.1 Customer shall provide to Mobile Gas a daily *** confirming nomination to
match the nomination made from Customer's Transporters. Customer's confirmation
may be made by voice or fax prior to 3 P.M., Mobile Alabama time, the day before
a weekday delivery and prior to 3 P.M., Mobile Alabama time, on the Friday
before any weekend or Monday delivery. In the event Mobile Gas is made aware of
a discrepancy between the amount of gas confirmed by Customer's Transporter for
delivery to Customer and the amount of gas nominated by Customer to Mobile Gas
for redelivery, Mobile Gas shall notify Customer of such discrepancy. Customer
may nominate Gas it does not need at the Customer's Facility to other entities
at the Point of Delivery.
-10-
<PAGE> 11
9.2 Mobile Gas and Customer understand that maintaining gas balance between
receipts and deliveries is important to the success of both Customer's and
Mobile Gas' operations hereunder. Both parties agree to use their best efforts
to exchange necessary information and to maintain gas balances. Customer agrees
to use all reasonable efforts to balance its deliveries to the Point of Delivery
with its receipts at the Point of Redelivery. If Customer fails to do so, Mobile
Gas may, in addition to its imbalance remedies set forth in 9.3, take such
action as may be reasonably necessary to maintain the integrity of its system.
9.3 The parties shall use all reasonable efforts to avoid imposition of
imbalance charges, penalties, or fees by any third party supplier or
transporter. If, during any month, Customer or Mobile Gas receives an invoice
from a third party supplier or transporter which includes imbalance charges, the
parties shall use their best efforts to promptly determine the validity as well
as the cause of such imbalance charges. If the parties determine that the
imbalance charges were incurred as a result of Customer's actions or inactions
(which shall include, but shall not be limited to, Customer's failure to accept
quantities of gas at the Point of Redelivery equal to the nominated gas), then
Customer shall pay for such imbalance charges or reimburse Mobile Gas for such
imbalance charges paid by Mobile Gas to the third party transporter or supplier.
If the parties determine that the imbalance charges were incurred as a result of
Mobile Gas's actions or inactions, then Mobile Gas shall pay for such imbalance
charges, or reimburse Customer for such imbalance charges paid by Customer to
the third party transporter or supplier.
9.4 Whenever the Customer's nominated gas volume is delivered to the Mobile Gas'
System at the Point of Delivery and is not in balance with the gas utilized by
the Customer at the Point of Redelivery, for reasons other than curtailment by
Mobile Gas, the Customer is deemed to be "Out of Balance". Gas available for
redelivery to customer but not utilized by Customer is Out of Balance gas and is
not subject in any way to remedies set forth in Section 9.6. Delivered gas which
is not available for redelivery to Customer due to curtailment by Mobile Gas is
not deemed to be Out of Balance gas.
9.5 In the event that Mobile Gas is unable to redeliver Gas to Customer as
provided in this Agreement for any reason, the following procedures shall apply:
(a) Mobile Gas will notify Customer immediately of the
anticipated level of curtailment of Customer's Contract Demand, and the
specific causes of such curtailment;
(b) Mobile Gas will notify Customer as soon as practicable as
to all measures which Mobile Gas will undertake to eliminate and/or
mitigate the
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<PAGE> 12
curtailment of Customer's Contract Demand, and will consider and
respond to all input received from Customer in a timely manner
concerning such elimination and/or mitigation measures.
9.6 Whenever the gas to be delivered to the Mobile Gas System is deemed
insufficient to meet the expected demands of customer's requirements on the
Mobile Gas System and Mobile Gas is required to curtail services to Customer
hereunder to comply with applicable law and governmental regulations, Mobile Gas
shall pay Customer for any Gas received by Mobile Gas for the account of
Customer at the Point of Delivery which Mobile Gas delivers to another customer
on the Mobile Gas System as a result of such curtailment on the Mobile Gas
System. The amount to be paid by *** shall be equal to ***. The *** with respect
to *** means ***.
ARTICLE X - NOTICES
10.1 Whenever any notice, request, demand, statement or payment is required or
permitted to be given under any provision of this Agreement, unless expressly
provided otherwise, such notice shall be in writing, signed by or on behalf of
the person giving the same, and shall be deemed to have been given and received
upon the actual receipt (including the receipt of a telecopy or facsimile of
such notice) at the address of the parties as follows:
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<PAGE> 13
<TABLE>
<CAPTION>
For Billing:
Mobile Gas: Customer:
<S> <C>
Mobile Gas Service Corporation Mobile Energy LLC
P. O. Box 2248 650 Dundee Road, Suite 350
Mobile, Alabama 36652 Northbrook, Illinois 60062
Attn: Plant Manager
For Contract Administration:
Mobile Gas: Customer:
Mobile Gas Service Corporation Coral Energy Resources, L.P.
P.O. Box 2248 909 Fannin, Suite 700
Mobile, Alabama 36652 Houston, Texas 77010
Attn: Director, Industrial Services Attn: Mobile Energy Account Manager
with copy to:
Mobile Energy LLC
650 Dundee Road, Suite 350
Northbrook, Illinois 60062
Attn: Fuels Manager
For Operational Matters:
For Mobile Gas: For Customer:
Mobile Gas Services Corporation Mobile Energy LLC
P. O. Box 2248 650 Dundee Road, Suite 350
Mobile, Alabama 36652 Northbrook, Illinois 60062
Attn: Gas Control Department Attn: Plant Manager
Telephone: (334) 476-2120 Telephone: (847) 559-9800
Telecopy: (334) 476-8292 Telecopy: (847) 559-1805
</TABLE>
10.2 The parties may in addition, according to the procedure of 10.1, from time
to time designate and furnish to the other in writing the name(s), address(es),
and fax number(s), of the person or persons responsible for natural gas
nominations. Any party may change its address and the other foregoing
information with respect to such party by providing written notice thereof to
the other party in the manner provided above.
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<PAGE> 14
ARTICLE XI - ENTIRE AGREEMENT
11.1 This instrument embodies the entire agreement and understanding between the
parties hereto. There are no agreements, understandings, conditions, warranties,
or representatives, oral or written, express or implied, with reference to the
subject matter hereof that are not merged herein or superseded hereby.
ARTICLE XII - DISCLOSURE
12.1 Mobile Gas understands and agrees that Customer's Transporter shall have
the right to audit Customer's records (including measurement and custody
transfer data provided to Customer by Mobile Gas) to confirm Customer's use of
the Gas delivered to the Point of Delivery is in conformity with Customer's
agreement with Customer's Transporter.
12.2 Mobile Gas shall at all times, for a period of at least three (3) years
from the month in which transportation service was provided, maintain accurate
books and accounts, in accordance with generally accepted accounting principles,
of its costs, fees and charges of any nature invoiced to Customer hereunder.
Customer or its designated representatives shall at all reasonable times have
the right to audit such books and accounts to verify all such costs, fees, and
charges including without limitation the gas balance, receipt and delivery
records. After three (3) years, all books and accounts are deemed final, except
to the extent that an exception or dispute has been raised with respect to any
cost, fee, charge or other item therein within said three (3) year period.
12.3 Mobile Gas further understands and agrees that Customer will disclose the
terms and provisions of this Agreement to International Paper Company for the
purpose of enabling International Paper Company to audit the actual cost of
fuels and transportation of fuels used to produce steam and electricity for sale
by Customer to International Paper Company.
ARTICLE XIII - MISCELLANEOUS PROVISIONS
13.1 If, on any Day, Customer takes unauthorized volumes of Gas, Customer shall
pay to Mobile Gas, as damages, any commercially reasonable additional direct
costs incurred by Mobile Gas. The payment of damages for unauthorized volumes by
Customer shall not under any circumstances, be considered as giving Customer the
right to take unauthorized volumes, nor shall such payment be considered as a
substitute for any other remedies available to Mobile Gas against Customer for
failure to respect its obligations to adhere to the provisions of its contract
with Mobile Gas. In the event, Mobile Gas incurs any penalties and/or
commercially reasonable direct costs or expenses resulting from the Customer
being over or
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<PAGE> 15
under nominated for any period of time, the Customer shall reimburse Mobile Gas
for such cost, expenses and/or penalties.
13.2 (a) Gas delivered will be measured through one or more meters installed and
maintained by Mobile Gas. Mobile Gas will inspect such meters from time to time,
and shall keep such measuring equipment accurate and in repair. Mobile Gas shall
give customer reasonable notice of tests conducted on measuring equipment in
order that, if Customer desires, Customer may have its representative present.
Upon written request of the Customer, Customer may challenge the accuracy of
such measuring equipment and, when challenged, the equipment shall be tested,
calibrated, and repaired by Mobile Gas. Customer shall bear the cost of such
special tests requested by Customer if the measuring equipment is found to be
accurate to the extent that it affects the measuring accuracy by an amount of
two percent (2%) or less. Otherwise, Mobile Gas shall bear such cost.
(b) If, upon any test, the measuring equipment of Mobile Gas at any
point is found to be inaccurate in the aggregate by one percent or more,
measurement or registration thereof and any payment based upon such measurements
or registrations will be corrected at the rate of such inaccuracy for any period
of inaccuracy which is definitely known or agreed upon, or if not known or
agreed upon, then for a period extending back one-half of the time elapsed since
the Day last calibrated. Following any test, any measuring equipment found to be
inaccurate to any degree will be adjusted immediately to measure accurately. If,
for any reason, any meter is out of service or out of repair so that the
quantity of Gas delivered or redelivered through such meter cannot be
ascertained or computed from the readings thereof, the quantity of Gas so
delivered during the period such meter is out of service or out of repair will
be estimated and agreed upon by the parties hereto on the basis of the best
available data, using the first of the following methods that is feasible:
(i) by using the registration of any check measuring equipment
of Customer, installed and registering; or
(ii) by correcting the error if the percentage of error is
ascertainable by calibration, test or mathematical calculation; or
(iii) by estimating the quantity of receipts or deliveries
from preceding periods under similar conditions when the meter was
registering accurately.
(c) Customer may, at its option and expense, install and operate a
check meter to check Mobile Gas's meter, but measurement of Gas delivered to
Customer, for the purpose of this Agreement shall be by Mobile Gas's operated
metering only, except to the limited extent provided in clause (b) above. Any
check meter installed shall be of standard type and shall be subject at all
reasonable times
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<PAGE> 16
to inspection or examination by Mobile Gas, but the testing, reading,
calibration and adjustment thereof and changing of charts shall be done only by
the employees or agents of Customer.
(d) Mobile Gas shall install, own, and operate types of meters and
chromatography in general use and acceptance in the industry to measure gas
redelivered hereunder.
(e) Mobile Gas shall provide a signal or signals, including gas flow,
pressure, and analysis data from its measurement equipment, such that the
Customer may monitor the gas flow.
13.3 (a) Mobile Gas agrees to protect, defend, indemnify, and hold harmless the
Customer, its officers, directors, agents, contractors and/or employees from and
against any claims, demands, losses, damages, suits and expenses, for damages
and/or injury to persons and/or property which may be brought against Customer,
its officers, directors, agents, contractors and/or employees arising out of, or
resulting from, the transportation of natural gas from the Point of Delivery to
the Point of Redelivery pursuant to the terms and conditions expressed herein,
except to the extent of damages and injuries caused by the negligence of
Customer.
(b) Customer agrees to protect, defend, indemnify, and hold harmless
Mobile Gas, its officers, directors, agents, contractors, and/or employees from
and against any claims, demands, losses, damages, suits and expenses, for
damages and/or injury to persons and/or property which may be brought against
Mobile Gas, its officers, directors, agents, contractors and/or employees
arising out of, or resulting from, the transportation of natural gas by Customer
or its agents or contractors (other than Customer's Transporter) to the Point of
Delivery and from the Point of Redelivery to and through its Plant and
facilities, except to the extent of damages and injuries caused by the
negligence of Mobile Gas. It is expressly understood and agreed that Customer
shall have no liability or responsibility to Mobile Gas for (and shall not be
obligated to defend, indemnify or hold harmless Mobile Gas or any other person
on account of) any actions or omissions of Koch or any other Customer's
Transporter.
13.4 (a) Customer warrants for itself, its successors and assigns, that it will
have at the time of delivery of gas for transportation hereunder good title or
valid right to deliver such gas hereunder; that the gas it delivers hereunder
shall be free and clear of all liens, encumbrances, or claims whatsoever; and
that it will indemnify Mobile Gas and save it harmless from all claims, suits,
actions, damages, costs and expenses arising directly or indirectly from or with
respect to the title to gas tendered to Mobile Gas hereunder.
(b) As between Customer and Mobile Gas, Customer shall be in control
and possession of the gas transported hereunder prior to delivery to Mobile Gas
at
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<PAGE> 17
the Point of Delivery and after delivery by Mobile Gas to Customer at the Point
of Redelivery, and Mobile Gas shall be in control and possession of the gas
after the receipt of the same at the Point of Delivery and until delivery by
Mobile Gas to Customer at the Point of Redelivery. The risk of loss for all gas
transported hereunder shall be and remain with the party having control and
possession of the gas as herein provided.
13.5 The authorized agents of Mobile Gas shall have, at all times, the right of
access to the easements to be provided pursuant to Section 4.3 for the purpose
of examining and inspecting such meters and/or for other necessary purposes.
13.6 Mobile Gas agrees to transport additional volumes of Gas to Customer for a
period of up to 45 days beyond the termination of this Agreement in order to
bring into balance any imbalance that exists at the termination of this
Agreement.
13.7 This Agreement shall not be assigned or transferred by either party without
prior written consent of the other party, which consent shall not be
unreasonably withheld. Provided, however, that either party may assign this
Agreement to any person with equal or greater creditworthiness which is a
successor owner or operator upon written notice to, but without consent of the
other party. Furthermore, Customer shall have the express right to assign,
mortgage and/or pledge Customer's rights and interests in and under this
Agreement to, and/or create security interests, liens, and/or other encumbrances
in Customer's rights and interests in and under this Agreement in favor of, any
lenders who have provided financing for the construction or operation of the
Customer Facility. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the respective legal representatives,
successors and assigns of the parties hereto.
13.8 In the event one or more of the provisions contained herein shall for any
reasons be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
13.9 Any changes, modifications or alterations of this Agreement shall not be
effective unless in writing, signed by authorized representatives of the parties
hereto in accord with Section 10.1, and no course of dealing between the parties
shall be construed to alter the terms hereof, except as expressly stated herein.
13.10 Customer has designated Coral Energy Resources L.P. ("Coral") as its agent
for the purpose of locating, processing and arranging for delivery of gas to
Customer's plants Coral shall act for Customer in giving and receiving notices
and nominations, negotiating and administering this Agreement, and for any other
purpose as may be authorized by Customer. Customer may designate a new agent
from time to time by giving Mobile Gas written notice in accordance with Article
X,
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<PAGE> 18
and authorization of Coral to act as agent for Customer thereupon, shall cease
and the new agent shall have such authority.
13.11 This Agreement is subject to the rules and orders of the Alabama Public
Service Commission.
13.12 This Agreement is contingent upon approval by the Alabama Public Service
Commission. Immediately upon the execution of this Agreement and notwithstanding
the condition precedent in Section 2.4 on Customer's obligations under this
Agreement, Mobile Gas shall make and diligently prosecute with the Alabama
Public Service Commission all filings and take all other commercially reasonable
actions which are required to obtain the approval of this Agreement by the
Alabama Public Service Commission. Mobile Gas shall provide Customer a copy of
the Alabama Public Service Commission's final, *** order approving this
Agreement *** from the date of this Agreement.
13.13 Customer shall provide Mobile Gas an executed confirmed irrevocable letter
of credit or an executed irrevocable Surety Bond, naming Mobile Gas Service
Corporation as beneficiary, providing for the payment of Exit Fees in the
amounts and for the corresponding periods contained in Exhibit C. The financial
institution issuing the letter of credit and/or the surety bond company must be
acceptable to Mobile Gas in its reasonable sole discretion.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its officer thereunto duly authorized as of the date first above
written.
WITNESS: MOBILE GAS SERVICE CORPORATION
/s/ Cathering Korte By: /s/ W.G. Coffeen, III
- ------------------- ---------------------------------------
Its: Vice President of Corporate
--------------------------------------
Development & Planning
--------------------------------------
MOBILE ENERGY LLC
By: SkyGen Investors LLC, its managing
WITNESS: member,
By: SkyGen Energy LLC, its managing member
/s/ T. E. M. By: /s/ Michael Polsky
- ------------------- ---------------------------------------
Its: President
--------------------------------------
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<PAGE> 19
EXHIBIT A
MOBILE GAS SERVICE CORPORATION
TRANSPORTATION SERVICE CONDITIONS
1. SPECIAL TRANSPORTATION RATE
*** per MMBtu *** from the Point of Delivery under Paragraph 4.A below
to the Point of Redelivery.
2. MINIMUM BILLING
For each Contract Year, the minimum *** bill for transportation of the
Contract Demand *** an amount equal to ***. If *** the *** minimum bill
shall be ***
***
***
4. POINT OF DELIVERY
Whistler Junction Point of Delivery: Customer's Transporter shall make
delivery of nominated volumes up to the Contract Demand to the
following Point of Delivery: the Mobile Gas interconnection with Koch
at Whistler Junction (Koch SLN 2460) or any other mutually agreed
points during the term of this Agreement.
5. RATE ADJUSTMENT
The transportation rate of *** per MMBtu shall be adjusted (***)
annually to be effective for transportation services hereunder on and
after January 1 of each succeeding Contract Year of this Agreement.
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<PAGE> 20
The *** adjustment shall be ***. *** is defined for this purpose to be
*** (as determined by reference to *** in each *** (as determined by
reference to ***). Expressed mathematically:
***
As used herein, the term *** refers to ***, including any and all ***.
By way of reference, ***.
Notwithstanding anything contained herein to the contrary, ***. In no
event shall ***.
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<PAGE> 21
EXHIBIT B
ADDITIONAL DEFINITIONS
"Btu" means the amount of energy required to raise the temperature of
one pound of pure water one degree Fahrenheit from 58.5 degrees Fahrenheit to
59.5 degrees Fahrenheit at a constant pressure of fourteen and seventy-three
hundredths pounds per square inch absolute (14.73 psia).
"Customer's Transporter" means the pipeline delivering Gas to Mobile
Gas for the account of Customer at the Point of Delivery.
"Day" means a 24 hour period, ending at 9:00 a.m., local time in
Mobile, Alabama, on any calendar day.
"Contract Year" shall mean any period containing 12 consecutive
calendar months beginning on the first day of the Primary Term, or any annual
anniversary thereof, and continuing through the last day of the 12th succeeding
calendar month following the 1st day of the Primary Term, or any anniversary
thereof.
"Gas" means methane and other gaseous hydrocarbons meeting the quality
standards and specifications, including specifications with regard to caloric
value, applicable to the Point of Delivery contained in the FERC or Alabama
Public Service Commission Gas tariff of Customer's Transporter, as such
provisions may be changed from time to time.
"MMBtu" means one million Btus.
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<PAGE> 22
EXHIBIT C
EXIT FEES
If this Agreement is terminated and an Exit Fee is due in accordance with
Section 2.6, such Exit Fee shall be determined as provided in this Exhibit C.
Time of Termination Exit Fee Due
- ------------------- ------------
*** ***
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<PAGE> 23
Notwithstanding the above, in the event this Agreement is terminated subsequent
to the "Financing Date" as defined in Section 2.4 but prior to the commencement
of performance testing by Customer, ***. The Parties further agree that no exit
fees shall be due if: (i) Customer *** its inability to obtain financing ***, or
(ii) Mobile Gas fails to provide Customer a copy of the Alabama Public Service
Commission's *** order approving this Agreement *** from the date of this
Agreement.
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<PAGE> 1
EXHIBIT 10(j)-1
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is made and entered into
as of the 8th day of December, 1999 by and between ENERGYSOUTH, INC., an Alabama
corporation ("EnergySouth"), and _____________ ("Executive").
WHEREAS, Executive is an effective and valuable employee and officer of
EnergySouth and/or one or more of its subsidiaries;
WHEREAS, EnergySouth recognizes that the uncertainties involved in a
potential or actual change in control of EnergySouth could result in the
distraction or departure of management personnel such as Executive to the
detriment of EnergySouth and its shareholders; and
WHEREAS, EnergySouth desires to lessen the personal and economic
pressure which a potential or actual change in control may impose on Executive
and thereby facilitate Executive's ability to bargain successfully for the best
interests of EnergySouth's shareholders in the event of such a change in
control;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, EnergySouth and Executive hereby agree as follows:
Section 1. Definitions.
As used in this Agreement the following words and terms shall have the following
meanings:
1.1 "Cause". Termination of employment by Employer for "Cause" shall
mean termination based on any of the following:
1.1.1 The willful and continued failure by the Executive to
substantially perform Executive's duties with Employer (other than any
such failure resulting from Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is
delivered to Executive specifically identifying the manner in which
Executive has not substantially performed Executive's duties;
1.1.2 The engaging by Executive in willful misconduct which is
demonstrably injurious to Employer monetarily or otherwise; or
1.1.3 The conviction of Executive of a felony.
1.2 "Change in Control" means the occurrence of any one or more of the
following:
<PAGE> 2
1.2.1 The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership (within the meaning of Rule
13(d)-3 promulgated under the Exchange Act) of 25% or more of either
(i) the then outstanding shares of common stock of EnergySouth (the
"Outstanding Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of EnergySouth entitled to vote
generally in the election of directors (the "Outstanding Voting
Securities"); provided, however, that for purposes of this subsection
(1) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by EnergySouth or any corporation controlled by
EnergySouth shall not constitute a Change in Control;
1.2.2 Individuals who, as of December 3, 1999, constitute the
Board of Directors of EnergySouth (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors of
EnergySouth (the "Board of Directors"); provided, however that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by EnergySouth's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors;
1.2.3 Consummation of a reorganization, merger or
consolidation, or sale or other disposition of all or substantially all
of the assets, of EnergySouth (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 75% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns EnergySouth or
all or substantially all of EnergySouth's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of
the Outstanding Common Stock and Outstanding Voting Securities, as the
case may be, (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related
trust) of EnergySouth or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such
2
<PAGE> 3
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors, providing for
such Business Combination;
1.2.4 Any transaction or series of transactions which is
expressly designated by resolution of the Board of Directors to
constitute a Change in Control for purposes of this Agreement.
1.3 "Code" means the Internal Revenue Code of 1986, as the same may be
from time to time amended.
1.4 "Compensation" means an amount equal to the sum of (A) plus (B),
where (A) is the Executive's annualized base salary in effect immediately prior
to the Change in Control, and (B) is the higher of (i) the annual bonus awarded
Executive by Employer pursuant to the EnergySouth Officers Incentive
Compensation Plan (or any successor annual cash incentive plan) ("Bonus") with
respect to the fiscal year immediately preceding the fiscal year in which the
Change in Control occurs, or (ii) the average of the Bonus awards to Executive
with respect to the three (3) fiscal years immediately preceding the fiscal year
in which the Change in Control occurs.
1.5 "Date of Termination" means the date that a termination of
Executive's employment with Employer is first effective.
1.6 "Disability" means the total and permanent disability which
entitles Executive to a disability benefit under a disability program sponsored
and/or maintained by Employer.
1.7 "Effective Period" means the period commencing with the earliest
date that a Change in Control occurs and ending on the last day of the
twenty-fourth calendar month following the calendar month during which such
Change in Control occurred. Anything in this Agreement to the contrary
notwithstanding, if a Change in Control occurs, and if the Date of Termination
with respect to Executive's employment with EnergySouth occurs prior to the date
on which the Change in Control occurs, and if it is reasonably demonstrated by
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the Change in Control
or (ii) otherwise arose in connection with or in anticipation of the Change in
Control, then for all purposes of this Agreement the "Effective Period" shall be
deemed to have commenced on the date immediately preceding the Date of
Termination.
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<PAGE> 4
1.8 "Employer" means EnergySouth and/or its Subsidiaries.
1.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.10 "Good Reason" means the occurrence during an Effective Period of
any of the following events without Executive's prior written consent:
1.10.1 The assignment to Executive by Employer of duties
inconsistent with Executive's position, authority, duties,
responsibilities and status with Employer immediately prior to a Change
in Control, or a change in Executive's titles or offices as in effect
immediately prior to a Change in Control, or any removal of Executive
from or any failure to reelect Executive to any of such positions, if
such assignment, change, or removal results in a diminution in
Executive's position, authority, duties, responsibilities or status
with Employer immediately prior to a Change in Control or any other
action by Employer that results in such a diminution in Executive's
position, authority, duties, responsibilities or status;
1.10.2 A reduction in Executive's aggregate rate of monthly
base pay from the Employer;
1.10.3 The termination or material adverse modification of the
EnergySouth Officer Incentive Compensation Plan or the Amended and
Restated Stock Option Plan of EnergySouth, Inc. (or any other short or
long-term incentive compensation plan in effect immediately prior to a
Change in Control) without substitution of new short or long-term
incentives providing comparable compensation opportunities for
Executive.
1.10.4 A failure by Employer to use its best efforts to
provide Executive with either the same fringe benefits (including
retirement benefits and paid vacations) as were provided to Executive
immediately prior to a Change in Control or a package of fringe
benefits that, though one or more of such benefits may vary from those
in effect immediately prior to the Change in Control, is substantially
comparable in all material respects to the fringe benefits (taken as a
whole) in effect prior to a Change in Control;
1.10.5 Executive's relocation by Employer to any place more
than 50 miles from the location at which Executive performed the
substantial portion of Executive's duties prior to a Change in Control,
except for required travel by Executive on Employer's business to an
extent substantially consistent with Executive's business travel
obligations immediately prior to such Change in Control;
1.10.6 Any material breach by EnergySouth of any provision of
this Agreement or any other agreement between EnergySouth and Executive
which
4
<PAGE> 5
breach continues for a period of thirty days following delivery by
Executive to EnergySouth of written notice of such breach.
1.11 "Notice of Termination" has the meaning set forth in Section 2.1
of this Agreement.
1.12 "Subsidiary" means any corporation or other legal entity, the
majority of the outstanding voting stock of which (or equity interests in) is
owned directly or indirectly, by EnergySouth.
1.13 "Triggering Termination" shall mean
(1) any termination by Employer of Executive's employment other
than for Cause,
(2) a termination of Executive's employment which Executive and
EnergySouth agree in writing will constitute a Triggering
Termination for purposes of this Agreement, and
(3) a voluntary termination of Executive's employment by Executive
for Good Reason.
Section 2. Notice of Termination.
During any Effective Period:
2.1 Any termination for Cause or Good Reason shall be communicated to
the other party by written notice ("Notice of Termination") referencing this
Agreement and, indicating in reasonable detail the facts and circumstances
providing a basis for such termination. The failure of Executive or Employer to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Cause or Good Reason shall not waive any right of
Executive or EnergySouth hereunder or preclude Executive or EnergySouth from
asserting or relying upon the omitted fact or circumstance in enforcing
Executive's or EnergySouth's rights hereunder.
2.2 Termination for Cause or Good Reason shall be effective upon
delivery of a Notice of Termination or at such later date as may be specified in
the Notice of Termination. In the event that each party delivers a Notice of
Termination, the Notice of Termination first delivered shall establish the
effective date of such Notice of Termination.
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<PAGE> 6
Section 3. Severance Payment.
In the event of a Triggering Termination, then Executive shall, subject to the
provisions of Section 7 hereof, receive as severance pay an amount equal to his
Compensation multiplied by [2.97] [2.00]. Any severance payment to be made under
this Section 3 shall be paid in one payment and in full on or prior to the
thirtieth day following the Date of Termination. It is the intention of the
parties to this Agreement that no severance benefits hereunder will be paid to
the extent that such benefits constitute "excess parachute payments" within the
meaning of Section 280G of the Code as amended from time to time.
Section 4. Other Benefits.
Subject to Section 7 hereof, in the event of a Triggering Termination, for a
period of twenty-four months commencing with the Date of Termination, Executive
and the Executive's family shall continue to be covered at the expense of
EnergySouth by the same or substantially equivalent hospital, medical, dental,
vision, accident, disability and life insurance coverages as were provided to
Executive and the Executive's family by Employer immediately prior to the Change
in Control; provided, however, that if Executive becomes employed with another
employer and is eligible to receive benefits of the type described above from
such other employer, EnergySouth's obligations under this Section 4 shall be
deemed satisfied to the extent of the benefits provided by such other employer.
Section 5. No Obligation To Seek Further Employment; No Effect on Other
Benefits.
5.1 Executive shall not be required to seek other employment, nor
(except as otherwise provided under Section 4 with respect to insurance
coverages) shall the amount of any severance payment or other benefit to be made
or provided under this Agreement be reduced by any compensation or benefit
earned by Executive as the result of employment by another employer after the
Date of Termination, or otherwise.
5.2 Any severance payment or benefit to be made or provided under this
Agreement is in addition to all other benefits, if any, to which Executive may
be entitled under other agreements or plans or programs of EnergySouth.
Section 6. Continuing Obligations of Executive.
As a result of and in connection with Executive's employment by Employer,
Executive is involved in a number of matters of strategic importance and value
to Employer including various projects, proceedings, planning processes, and
negotiations. Any number of these matters may be ongoing and continuing after
the Date of Termination. In addition Employee is privy to proprietary and
confidential information of Employer, including without limitation financial
information and projections, business plans and strategies, and customer and
vendor lists and information. The Executive agrees as follows:
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<PAGE> 7
6.1 For a period of two years following the Date of Termination,
Executive shall fully assist and cooperate with Employer and its representatives
(including outside auditors, counsel and consultants) with respect to any
matters with which the Executive was involved during the course of employment
with Employer, including being available upon reasonable notice for interviews,
consultation, and litigation preparation. Except as otherwise agreed by
Executive, Executive's obligation under this Section 6(a) shall not exceed 80
hours during the first year and 20 hours during the following year. Such
services shall be provided upon request of Employer but scheduled to accommodate
Executive's reasonable scheduling requirements. Executive shall receive no
additional fee for such services but shall be reimbursed all reasonable
out-of-pocket expenses.
6.2 For a period of twenty-four months following the Date of
Termination, the Executive shall not Compete (as defined below) or assist
others in Competing with Employer. For purposes of this Agreement, "Compete"
means (a) solicit in competition with Employer any person or entity which was a
customer of Employer at the Date of Termination, or (b) engage in any business
that is (i) in competition with any business carried on by Employer at the Date
of Termination and (ii) in Employer's service territory. An investment of less
than one percent of equity capital in, a person or entity which Competes with
Employer does not constitute Competition by Executive so long as Executive does
not directly participate in, assist or advise with respect to such Competition.
6.3 Executive agrees that at all times following the Date of
Termination, Executive will not, without the prior written consent of
EnergySouth, disclose to any person, firm or corporation any confidential
information of Employer which is now known to Executive or which hereafter may
become known to Executive as a result of Executive's employment or association
with Employer, unless such disclosure is required under the terms of a valid and
effective subpoena or order issued by a court or governmental body; provided,
however, that the foregoing shall not apply to confidential information which
becomes publicly disseminated by means other than a breach of this Agreement.
Section 7. Resignation from Offices.
EnergySouth shall have no obligation under Sections 3 and 4 hereof if Executive
shall not, promptly after the Date of Termination and upon receiving a written
request to do so, resign from each officer and/or director position which
Executive then holds with EnergySouth and any Subsidiary.
Section 8. Payment of Legal Fees and Expenses.
EnergySouth agrees to pay promptly as incurred, to the full extent permitted by
law, all reasonable legal fees and expenses which Executive may reasonably incur
(i) as a result of any contest (regardless of the outcome thereof) by
EnergySouth, Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement.
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<PAGE> 8
Section 9. Withholding.
The Company may withhold from any amounts payable under this Agreement such
Federal, state or local taxes as may be required to be withheld pursuant to any
applicable law or regulation.
Section 10. Term.
This Agreement shall terminate (except to the extent of any unpaid or
unfulfilled obligation with respect to a prior termination of Executive's
employment) on the first to occur of (a) any termination of Executive's
employment with Employer which does not constitute a Triggering Termination or
(b) expiration of the Term. The initial term of this Agreement shall be for a
period of three years from the date hereof. On each anniversary of the date
hereof, the term shall automatically extend by one year unless at least thirty
days prior to such an anniversary EnergySouth notifies Executive that there will
be no such extension, in which event the term shall continue for two years from
such anniversary.
Section 11. Binding Effect; Successors.
11.1 This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's personal representative and heirs, and EnergySouth and
its successors and assigns including any successor organization or organizations
which shall succeed to substantially all of the business and property of
EnergySouth, whether by means of merger, consolidation, acquisition of assets or
otherwise, including operation of law. EnergySouth will require any such
successor to expressly assume and agree to perform EnergySouth's obligations
under this Agreement.
11.2 Without the prior consent of EnergySouth, Executive may not assign
the Agreement, except by will or the laws of descent and distribution.
Section 12. Notice.
For purposes of this Agreement, notices and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid, as follows:
If to EnergySouth or Employer:
ENERGYSOUTH, INC.
2828 Dauphin Street
Mobile, Alabama 36606
Attention: Chairman
If to Executive:
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<PAGE> 9
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
Section 13. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing signed by
Executive and EnergySouth. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Alabama. The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ENERGYSOUTH, INC.
By
---------------------------------
Its
---------------------------------
EXECUTIVE
-------------------------------------
9
<PAGE> 1
EXHIBIT 10(u)
REVOLVING CREDIT AGREEMENT
BY AND AMONG
ENERGYSOUTH, INC.,
AS BORROWER,
AND
AMSOUTH BANK, N.A., AS AGENT,
AND
AmSOUTH BANK, N.A., REGIONS BANK,
WHITNEY NATIONAL BANK, SOUTH ALABAMA BANK
SOUTHTRUST BANK, N.A., AND COMMONWEALTH
NATIONAL BANK,
AS LENDERS
* * *
$20,000,000
* * *
SEPTEMBER 30, 1999
<PAGE> 2
REVOLVING CREDIT AGREEMENT
This Revolving Credit Agreement is entered into as of the 30th day of
September, 1999, by and among EnergySouth, Inc., as Borrower ("Borrower"),
AmSouth Bank, N.A., as agent for Lenders to the extent and in the manner
provided in Article VIII below ("'Agent"), and AmSouth Bank, N.A., Regions Bank,
Whitney National Bank, South Alabama Bank, SouthTrust Bank, N.A., and
Commonwealth National Bank, as Lenders (collectively, "Lenders").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lenders enter into this Revolving
Credit Agreement to provide for a revolving & edit facility for lending to
Borrower; and
WHEREAS, Lenders have agreed to do so upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other valuable consideration, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS OF TERMS
For the purposes of this Agreement, unless the context otherwise
requires, the following terms shall have the respective meanings assigned to
them in this Article I or in the section or recital referred to below:
Section 1.01. "Advance" shall mean the disbursement by the Agent of a
sum or sums loaned to Borrower pursuant to this Agreement.
Section 1.02. "Affiliate" shall mean any Person (1) which directly or
indirectly controls, or is controlled by, or is under common control with,
another Person or its Subsidiary; (2) which directly or indirectly beneficially
owns or holds five percent (5%) or more of any class of voting stock of another
Person or its Subsidiary; or (3) five percent (5%) or more of the voting stock
of which is directly or indirectly beneficially owned or held by another Person
or its Subsidiary. The term "control" means the possession, - directly
or-indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
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<PAGE> 3
Section 1.03. "Agent" shall have the meaning assigned to such term in
the preamble hereof.
Section 1.04. "Agreement" or "this Agreement" shall mean this Revolving
Credit Agreement as the same may be amended or modified from time to time.
Section 1.05. "AmSouth Bank" shall mean AmSouth Bank, N.A., a national
banking association.
Section 1.06. "Applicable Rate of Interest" shall mean the rate of
interest designated in accordance with Section 3.02 hereof.
Section 1.07. "Borrower" shall have the meaning assigned to such term
in the preamble hereof.
Section 1.08. "Borrowing Account" shall mean a demand deposit account
in AmSouth Bank in the name of, and under the control of, Borrower.
Section 1.09. "Borrowing Date" shall mean any date specified in a
Request for Advance delivered in accordance with the provisions of Section
2.02(a) as a date on which Borrower requests an Advance hereunder.
Section 1.10. "Business-Day" shall mean a day on which banks are open
for business in Mobile, Alabama.
Section 1.11. "Commitment" shall mean the obligation, of each Lender to
extend credit to Borrower under this Agreement in an aggregate principal amount
not to exceed such Lender's Committed Sum.
Section 1.12. "Commitment Period " shall mean the period beginning on
the date hereof and ending on the Commitment Termination Date.
Section 1.13. "Commitment Termination Date" shall mean the earlier of
(i) January 31, 2001 or, if such date is not a Business Day, the Business Day
next succeeding such date, unless the Lenders and Borrower shall agree in
writing by January 31, 2000 to the extension of the date of payment of the
indebtedness evidenced by the Note for one additional period of one (1) year, in
which event the date of payment of indebtedness evidenced by the Note, as
thereby extended, shall be the Commitment Termination Date, or (ii) date on
which the Commitment is terminated by either Borrower or Lenders pursuant to the
provisions hereof.
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<PAGE> 4
Section 1.14. "Committed Sum" shall mean, with respect to a Lender, the
amount set forth below opposite the name of such Lender:
<TABLE>
<S> <C> <C>
AmSouth Bank - $ 7,000,000.00
Regions Bank - 5,000,000.00
Whitney Bank - 5,000,000.00
South Alabama Bank - 2,000,000.00
SouthTrust Bank - 900,000.00
Commonwealth Bank - 100,000.00
</TABLE>
Section 1.15. "Commonwealth Bank" shall mean Commonwealth National
Bank, a national banking association.
Section 1.16. "Debtor Law" shall mean any of, and "Debtor Laws" means
all of the applicable liquidation, conservatorship, bankruptcy, moratorium,
arrangement, receivership, insolvency, reorganization or similar laws of any
jurisdiction from time to time in effect affecting the rights of creditors
generally.
Section 1.17. "Default" shall mean any of the events specified in
Article VII, regardless of whether there shall have occurred any passage of time
or giving of notice or both that would be necessary in order to constitute such
event an Event of Default.
Section 1.18. "Event of Default" shall have the meaning assigned to
such term in Section 7.01.
Section 1.19. "Governmental Authority" shall mean any government (or
any political subdivision or jurisdiction thereof), court, bureau, agency or
other governmental authority having jurisdiction over either Borrower or any of
its business, operations or properties.
Section 1.20. "Indebtedness" shall mean all long-term debt listed in
Note 3 to Borrower's Consolidated Financial Statements contained in Borrower's
Annual Report on Form 10K for year ended September 30, 1998.
Section 1.21. "Lenders" shall have the meaning assigned to such term in
the preamble hereof.
Section 1.22. "LIBOR" shall mean a fluctuating rate of interest equal
to the average offered rate in the London Interbank Market for deposits in U.S.
dollars for a one-month period, as reported in the Money Rates section of The
Wall Street Journal.
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<PAGE> 5
Section l.23. "Loan Documents" shall mean this Agreement and the Note
and all other documents executed by Borrower in connection therewith.
Section 1.24. "Loans" shall mean the aggregate unpaid principal balance
of all Advances Loans; each Advance, individually, a "Loan".
Section 1.25. "Maximum Rate" shall mean, on any day, the highest
nonusurious rate of interest permitted by applicable law on such day that at any
time, or from time to time, may be contracted for, taken, reserved, charged or
received on the Indebtedness evidenced by the Notes under the laws which are
presently in effect of the United States of America and the State of Alabama
applicable to the holders of the Notes and such Indebtedness or, to the extent
permitted by law, under such applicable laws of the United States of America and
the State of Alabama which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
Section 1.26. "Note" shall mean the promissory note executed by
Borrower and delivered pursuant to the terms of this Agreement, together with
any renewals, extensions or modifications thereof.
Section 1.27. "Obligations" shall mean:
(a) all present and future indebtedness, obligations and liabilities of
Borrower to Agent and Lenders arising pursuant to this Agreement, regardless of
whether such indebtedness, obligations and liabilities are direct, indirect,
fixed, contingent, joint, several, or joint and several;
(b) all present and future indebtedness, obligations and liabilities of
Borrower to Lenders arising pursuant to or represented by the Note and all
interest accruing thereon, and reasonable attorneys' fees incurred in the
enforcement or collection thereof;
(c) all present and future indebtedness, obligations and liabilities of
Borrower evidenced by or arising pursuant to any of the Loan Documents; and
(d) all renewals, extensions, modifications and refundings of the
indebtedness referred to in the foregoing clauses, or any part thereof.
Section 1.28. "Percentage" shall mean, with respect to each Lender, the
percentage set forth below opposite the name of such Lender but as it may be
changed from time pursuant to Subsection 2.02(c):
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<PAGE> 6
<TABLE>
<S> <C> <C>
AmSouth Bank - 35% (.35)
Regions Bank - 25% (.25)
Whitney Bank - 25% (.25)
South Alabama Bank - 10% (.10)
SouthTrust Bank - 4.5% (.045)
Commonwealth Bank - .5% (.005)
</TABLE>
Section 1.29. "Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
Section 1.30. "Regions Bank" shall mean Regions Bank, an Alabama
banking corporation.
Section 1.31. "Request for Advance" shall have the meaning assigned to
such term in Section 2.02(a).
Section 1.32. "South Alabama Bank" shall mean South Alabama Bank, an
Alabama banking corporation.
Section 1.33. "SouthTrust Bank" shall mean SouthTrust Bank, N.A., a
national banking association.
Section 1.34. "Subsidiary" shall mean a corporation, general
partnership, limited liability company, limited partnership or other business
entity of which the shares, partnership or membership interests having ordinary
voting power to elect a majority of the board of directors, general partners,
managing partners or managers of such business entity are at the time owned, or
the management of which is otherwise controlled, directly or indirectly, through
one or more intermediaries, or both, by Borrower.
Section 1.35. "Taxes" shall have the meaning assigned to such term in
Section 3.07.
Section 1.36. "Total Commitment" shall mean $20,000,000.00.
Section 1.37. "Whitney Bank" shall mean Whitney National Bank, a
national banking association.
Section 1.38. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the above defined
meanings when used in the Note or any Loan Documents, certificate, report or
other document made or delivered pursuant to this Loan Agreement, unless the
context thereof shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural
and vice-versa.
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<PAGE> 7
(c) The words "hereof", "herein", "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
ARTICLE II
THE REVOLVING LOANS
Section 2.01. Revolving Commitments. Subject to the terms and
conditions of the Agreement, each Lender severally (and not jointly) agrees to
lend to Borrower on a revolving, basis, in one or more Advances, from time to
time during the Commitment Period, an amount equal to such Lender's Percentage
of amounts requested by Borrower in each Request for Advance; provided, however,
that (a) total Loans outstanding at any one time shall not exceed $20,000,000,
(b) no Lender shall be obligated to make an advance if such advance would cause
the Lender's Percentage of the unpaid principal balance of the indebtedness
evidenced by the Note to be in excess of such Lender's Committed Sum, (c) each
advance shall be in an amount not less than $100,000.00, and (d) each advance
shall be made ratably by all Lenders in accordance with their respective
Percentages. Within the limits of this Section 2.01, during the Commitment
Period Borrower may borrow, repay and reborrow in accordance with the terms and
conditions of this Agreement.
Section 2.02. Advances.
(a) Request for Advance. Borrower shall give Agent telephonic notice by
noon, local time in Mobile, Alabama, on the day of each requested Borrowing
hereunder, confirmed in writing by hand delivery or facsimile within one (1)
hour of such telephonic notice (a "Request for Advance"), specifying the
aggregate amount of such Borrowing.
(b) Notice Irrevocable. Each Request for Advance shall be irrevocable
and binding on Borrower, and Borrower shall indemnify each Lender against any
cost, loss or expense incurred by such Lender as a result of any failure to
fulfill, on or before the date specified for an Advance, the conditions to the
making of such Advance set forth herein, including without limitation, any cost,
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund the Advance to be made by
such Lender as part of such Borrowing.
(c) Funding. After receiving a Request for Advance in the manner
provided herein, Agent shall promptly notify each Lender by telephone (confirmed
immediately by telecopier, telex or cable), telecopier, telex or cable of the
term's of such notice and such Lender's Percentage of such Advance. Each Lender
shall, before 2:00 p.m., local time in Mobile, Alabama, on the date
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<PAGE> 8
an Advance is requested as specified in a Request for Advance, deposit with
Agent such Lender's Percentage of such Advance in immediately available funds.
Upon apparent fulfillment of all applicable conditions set forth herein and
after receipt by Agent of such funds, Agent shall deposit such funds into the
Borrowing Account. The failure of any Lender to make any Advance required to be
made by it hereunder shall not relieve any other Lender of its obligation to
make its Advance hereunder. If any Lender fails to provide its Percentage of any
Advance and if all conditions to such Advance have apparently been satisfied,
Agent will make available to Borrower the funds received by it from the other
Lenders. Neither Agent nor any Lender shall be responsible for the performance
by any other Lender of its obligations hereunder. In the event of any failure by
a Lender to make an Advance required hereunder, the other Lenders may (but shall
not be required to) purchase (on a pro rata basis, according to their respective
Percentages) such Lender's interest in, the Note.
Unless Agent shall have received notice from a Lender prior to 2:00
p.m., local time in Mobile, Alabama, on the date of any Advance that such Lender
will not make available to Agent such Lender's Percentage of such Advance, Agent
may assume that such Lender has made such amount available to Agent on the date
of such Advance and Agent may, in reliance upon such assumption, make available
a corresponding amount to or on behalf of Borrower on such date. If and to the
extent any Lender shall not have so made its Percentage of any Advance available
to Agent, Borrower agrees to repay to Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to or on behalf of Borrower until the date such
amount is repaid to Agent, at the interest rate under the Note.
Section 2.03. Commitment Fees. Borrower agrees to pay to Agent, for the
account of each Lender, availability fees for the Commitment Period computed at
a rate per annum equal to one-eighth of one percent (1/8 of 1 %) on the average
daily unborrowed amount of such Lender's Committed Sum in effect during the
period for which payment is made. Such commitment fees shall be payable annually
in arrears on the first Business Day after the anniversary of the Note and again
at the maturity date of the Note.
Section 2.04. Termination of Commitment by Borrower. Borrower may at
any time, upon not less than thirty (30) Business Days' prior written notice to
Lenders, terminate the Commitment provided, however, that upon the termination
of the Commitment, all amounts due under the Note and other Loan Documents shall
be immediately due and-payable.
Section 2.05. Use of Proceeds. The proceeds of each Borrowing shall be
used for the general corporate purposes of Borrower.
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<PAGE> 9
ARTICLE III
NOTES AND NOTE-PAYMENTS
Section 3.01. Note. The Advances shall be evidenced by a promissory
note (the "Note") executed by Borrower, which Note shall (a) be dated the date
hereof, (b) be in the principal amount of $20,000,000.00, (c) be payable to the
order of Agent, as Agent for the Lenders, at the office of Agent, (d) bear
interest in accordance herewith, and (e) be in the form of Exhibit "A" attached
hereto, with blanks appropriately completed in conformity herewith. The Agent is
authorized, but is not required, to endorse on the schedule attached to the Note
appropriate notations evidencing the date and amount of each Advance as well as
the amount of each payment made by Borrower thereunder.
Section 3.02. Interest Rate. The Borrower shall pay interest to the
Agent for the ratable benefit of the Lender, on the outstanding and unpaid
principal amount of the Loan at the rate of LIBOR plus eighty basis points
(.80%) per annum, based on a 365-day year, or the prime rate as reported in the
Money Rates section of The Wall Street Journal, minus 125 basis points (1.25%).
The Prime - Based Rate shall be adjusted as of the date each change in the prime
rate is reported in the Money Rates section of The Wall Street journal. The
interest rate shall be adjusted on the first day of each calendar month, based
upon LIBOR in effect as of the first Business Day of such month, and shall
remain in effect throughout such calendar month.
Section 3.03. Principal Payments and Prepayments.
(a) Payment of the Note. The unpaid principal amount of the Note, and
all accrued but unpaid interest thereon, shall be due and payable on the earlier
of (i) the Commitment Termination Date, or (ii) the date on which the Note
becomes due and payable under the provisions of Section 7.02 hereof.
(b) Optional Principal Prepayments on the Note. At any time and from
time to time Borrower may prepay without premium or penalty the principal of the
Note then outstanding, in whole or in part.
Section 3.04. Payment of Interest on the Note. Interest upon the Note
shall be calculated at the end of each calendar month and shall be due and
payable on the first business day of the next calendar month and at the
Commitment Termination Date.
Section 3.05. Manner and Application of Payments. All payments and
prepayments of principal of, and interest on, the Note shall be made by Borrower
to Agent before 2:00 p.m., local time in Mobile, Alabama, in federal or other
'immediately available funds at Agent's principal banking office in Mobile,
Alabama. Any payment or prepayment received by Agent after 2:00 p.m.,
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local time in Mobile, Alabama, shall be deemed to have been received by Agent on
the next succeeding Business Day. Should the principal of or interest on the
Note, or any commitment fee, become due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day. Each payment received by Agent hereunder for the account of
Lenders shall be promptly distributed by Agent to each Lender.
Section 3.06. Pro Rata Treatment. Each payment and each prepayment
received by Agent for the account of Lenders shall be distributed to each Lender
entitled to share in such payment in accordance with the Percentage of such
Lender (or in accordance with such Lender's pro rata share of total Advances, in
the event that such Lender's pro rata share of Advances is not equal to such
Lender's Percentage).
Section 3.07. Taxes.
(a) Any and all payments by Borrower hereunder or under the Note shall
be made in accordance with this Article III, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto.
(b) Borrower shall pay any-present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, any of the
Loan Documents.
(c) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in this
Section 3.07 shall survive the payment in full of the Obligations.
Section 3.08. Indemnity. Borrower shall indemnify each Lender and hold
each Lender harmless from any loss or expense or loss of margin which such
Lender may sustain or incur as a consequence of Borrower's failure or refusal to
borrow after Borrower has given a Request for Advance pursuant to Section
3-02(a). This covenant shall survive termination of this Agreement and payment
of the Obligations for a period of one (1) year. A statement setting forth the
calculations of any amounts payable pursuant to this subsection submitted by a
Lender to Borrower and Agent shall be conclusive in the absence of manifest
error.
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ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. Initial Advance. The obligation of each Lender to make
the initial Advance hereunder is subject to the condition precedent that, on or
before the date of such Advance, Agent shall have received for each Lender the
following, each dated as of the date of such Advance, in form and substance
satisfactory to Agent and such Lender:
(a) Note. The duly executed Note.
(b) Resolutions of Borrower. Resolutions of Borrower approving the
Loans contemplated hereby, duly adopted by Borrower's Board of Directors and
accompanied by a certificate of the Secretary or Assistant Secretary of Borrower
stating that such resolutions are true and, correct, have not been altered or
repealed and are in full force and effect.
(c) Mobile Gas Service Corporation. All obligations of Mobile Gas
Corporation under the Revolving Credit Agreement by and among Mobile Gas Service
Corporation and the Agent and Lenders shall concurrently be satisfied, and the
Commitment therein shall be terminated.
Section 4.02. All Advances. The obligation of each Lender to make any
Advance under this Agreement (including the initial Advance) shall be subject to
the following conditions precedent:
(a) No Defaults. As of the date of the making of such Advance, there
shall exist no Default or Event of Default.
(b) Compliance with Agreement. Borrower shall have performed and
complied with all agreements and conditions contained herein and in each of the
Loan Documents which are required to be performed or complied with by Borrower
before or on the date of such Advance.
(c) Request for Advance. Agent shall have received from Borrower a
Request for Advance in the form attached hereto as Exhibit "B", dated as of the
date of such Borrowing and signed by an authorized officer of Borrower.
(d) Representations and Warranties. The representations and warranties
contained in Article V hereof and in each of the Loan Documents shall be true in
all respects on the date of making of such Advance, with the same force and
effect as though made on and as of that date.
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(e) Bankruptcy Proceedings. No proceeding or case under Debtor Law
shall have been commenced by or against Borrower or any direct or indirect
Subsidiary of Borrower.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans hereunder, Borrower represents and
warrants Agent and to Lenders that:
Section 5.01. Organization and Good Standing. Borrower is a corporation
duly organized and existing in good standing under the laws of the State of
Alabama, and has the corporate power and authority to own its properties and
assets and to transact the business in which it is engaged.
Section 5.02. Authorization and Power. Borrower has the corporate power
and requisite authority to execute, deliver and perform the Loan Documents to be
executed by Borrower. Borrower is duly authorized, and has taken all corporate
action necessary to authorize Borrower, to execute, deliver and perform the Loan
Documents executed by Borrower. Borrower is and will continue to be duly
authorized to perform the Loan Documents executed by Borrower and the
Obligations.
Section 5.03. No Conflicts or Consents. Neither the execution and
delivery of the Loan Documents, nor the on summation of any of the transactions
therein contemplated, nor compliance with the terms and provisions thereof, will
materially contravene or conflict with any provision of law, statute or
regulation to which Borrower is subject or any judgment, license, order or
permit applicable to Borrower, or any indenture, loan agreement, mortgage, deed
of trust, or other agreement or instrument to which Borrower is a party or to
which Borrower may be subject, or violate any provision of the charter or bylaws
of Borrower. No consent, approval, authorization or order of any court or
Governmental Authority or third party is required and has not been obtained in
connection with the execution and delivery by Borrower of the Loan Documents or
to consummate the transactions contemplated hereby or thereby.
Section 5.04. Enforceable Obligations. The Loan Documents have been
duly executed and delivered by Borrower and are the legal and binding
obligations of Borrower, enforceable in accordance with their respective terms,
except as limited by Debtor Laws.
Section 5.05. No Default. No event known to Borrower has occurred and
is continuing which constitutes a Default or an Event of Default.
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Section 5.06. Use of Proceeds: Margin Stock. The proceeds of the Loans
will be used by Borrower solely for the purposes specified in this Agreement.
None of such proceeds will be used for the purpose of purchasing or carrying any
"margin stock" as defined in Regulation U, Regulation X, or Regulation G, or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a "margin stock" or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of such
Regulation U, Regulation X, or Regulation G. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stocks. Borrower has neither taken nor will take, and no Person acting on behalf
of Borrower has taken or will take, any action which might cause the Note or any
of the other Loan Documents, including this Agreement, to violate Regulation U,
Regulation X, or Regulation G or any other regulations of the Board of Governors
of the Federal Reserve System or to violate Section 8 of the Securities Exchange
Act of 1934 or any rule or regulation thereunder, in each case as now in effect
or as the same may hereinafter be in effect. Borrower neither owns, nor does any
subsidiary of Borrower own, "margin stock" as herein defined.
Section 5.07. Taxes. All tax returns required to be filed by Borrower
in any jurisdiction have been filed and all taxes (including mortgage recording
taxes), assessments, fees and other governmental charges upon Borrower or upon
any of its properties, income or franchises have been- paid prior to the time
that such taxes could give rise to a lien thereon. There is no known material
proposed tax assessment against Borrower and Borrower is not aware of any basis
for such assessment.
ARTICLE VI
COVENANTS
So long as Lenders have any commitment to make Advances hereunder, and
until payment in full of the Note, Borrower agrees that (unless Lenders shall
otherwise consent in writing):
Section 6.01. Financial Information. Borrower shall deliver to each
Lender, within three (3) days of its transmittal for filing with the Securities
and Exchange Commission, a true and correct copy of each Form 10-Q and Form 10-K
of Borrower.
Section 6.02. Additional Financial Information. Borrower shall deliver
to each Lender such additional financial information as Lenders may reasonably
request from time to time.
Section 6.03. Payment of Taxes and Other Indebtedness. Borrower shall
pay and discharge (a) all taxes, assessments and governmental charges or levies
imposed upon it before delinquent, and (b) all other indebtedness of
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Borrower; provided, however, that Borrower shall not be required to pay any such
tax, assessment, charge or levy if and so long as the amount, applicability or
validity thereof shall be contested in good faith by appropriate proceedings,
and appropriate accruals therefore shall have been established in accordance
with generally accepted accounting principles.
Section 6.04. Maintenance of Existence and Rights; Conduct of Business.
Borrower shall preserve and maintain its corporate existence and all of its
rights, privileges and franchises necessary or desirable in the normal conduct
of its business, and conduct its business in an orderly and efficient manner
consistent with good business practices.
Section 6.05. Compliance with Material Agreements. Borrower shall
comply in all material respects with all material agreements, indentures,
mortgages or documents binding on it or affecting its properties or business.
Section 6.06. Minimum Stockholders' Equity Plus Minority Interest.
Borrower, and its consolidated subsidiaries, shall at all times maintain a Total
Stockholders' Equity, plus Minority Interest, on a consolidated basis of not
less than Fifty-Five Million and No/100 Dollars ($55,000,000.00).
Section 6.07. Leverage Ratio. Borrower, and its consolidated
subsidiaries, will maintain at all times, on a consolidated basis, a ratio of
Total Liabilities plus Long-Term Debt, (excluding short-term debt used to
purchase temporary investments) to Stockholders Equity plus Minority Interest of
not greater than 2.0 to 1.0.
Section 6.08. Debt/Earnings Ratio. Borrower, and its consolidated
subsidiaries, will maintain at all times, on a consolidated basis, a ratio of
funded debt (excluding short-term debt used to purchase temporary investments)
to EBITDA (after dividends) of not more than 4.5 to 1. "'EBITDA" means earnings
before interest, taxes, depreciation, and amortization. Funded debt is defined
as the sum of Long-Term Debt, Current Maturities of Long-Term Debt, and Notes
Payable to Banks.
Section 6.09. Mobile Gas Service Corporation. (a) Borrower shall not
convey, sell, assign, transfer or otherwise dispose of any interest in Mobile
Gas Service Corporation or its capital stock, and (b) Borrower shall not allow
the gross assets of Mobile Gas Service Corporation to be less than $115,000,000
at any time during the term of the Loans; provided, however, that should Mobile
Gas Service Corporation dividend its subsidiary MGS Storage Services, Inc. to
Borrower so that MGS Storage Services, Inc. becomes a direct subsidiary of
Borrower, then the $115,000,000 requirement of this subsection shall be reduced
by a dollar amount equal to the value allocated to MGS Storage Services, Inc. on
the balance sheet of Mobile Gas Service Corporation for the month ended closest
to the date of such dividend.
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Section 6.10. Annual Payoff. Beginning in the year 2000 for 45
consecutive days during each calendar year that the Loan(s) is Outstanding the
Borrower will reduce the balance outstanding on the Loan(s) to zero.
Section 6.11. Due on Sale Provision. Upon any sale, lease, transfer or
disposition of either a controlling interest in Borrower, or a majority of its
now owned or hereafter acquired assets, or consolidation or merger into another
entity, this Loan(s) and the Note shall immediately become due and payable in
full.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01. Events of Default. An "Event of Default" shall exist if
any one or more of the following events (herein collectively called "Events of
Default") shall occur and be continuing:
(a) Borrower shall fail to pay within five (5) days of when due any
principal of, or interest on, any Note or any fee, expense or other payment
required hereunder;
(b) any representation or warranty made under this Agreement, or in any
certificate or financial statement furnished or made to Lenders pursuant hereto
or in connection herewith or with the Loans hereunder, shall prove to be untrue
or inaccurate in any material respect as of the date on which such
representation or warranty is made;
(c) default shall occur in the performance of any of the covenants or
agreements of Borrower contained herein, and such default remains uncured ten
(10) days after notice of such default is given to Borrower;
(d) default shall occur in the payment of any material Indebtedness of
Borrower (other than the Obligations) or default on the part of Borrower shall
occur in respect of any note, loan agreement or credit agreement relating to any
such indebtedness and such default shall continue for more than the period of
grace, if any, specified therein; or any such Indebtedness shall become due
before its stated maturity by acceleration of the maturity and shall not be
promptly paid or extended, thereof or shall become due by its terms and shall
not be promptly paid or extended;
(e) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of itself or of all or a
substantial part of Borrower's assets, (ii) file a voluntary petition in
bankruptcy, admit in a writing delivered or furnished to a third party
(including the Agent or Lenders) that such Borrower is unable to pay its debts
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as they become due or generally not pay its debts as they become due (iii) make
a general assignment for the benefit of creditors, (iv) file a petition or
answer seeking reorganization or an arrangement with creditors or to take
advantage of any bankruptcy or insolvency laws or other Debtor Law, (v) file an
answer admitting the material allegations of, or consent to, or default in
answering, a petition filed against Borrower in any bankruptcy, reorganization
or insolvency proceeding, or (vi) take corporate action for the purpose of
effecting any of the foregoing;
(f) an involuntary petition or complaint shall be filed against
Borrower seeking bankruptcy or reorganization of Borrower or the appointment of
a receiver, custodian, trustee, intervenor or liquidator of Borrower, or all or
substantially all of the assets of Borrower, and such petition or complaint
shall not have been dismissed within ninety (90) days of the filing thereof; or
an order, order for relief, judgment or decree shall be entered by any court of
competent jurisdiction or other competent authority approving a petition or
complaint seeking reorganization of Borrower or appointing a receiver,
custodian, trustee, intervenor or liquidator of Borrower, or of all or
substantially all of the assets of Borrower.
Section 7.02. Remedies Upon Event of Default. If an Event of Default
shall have occurred and be continuing, then Agent shall, at the request of
Lenders, and may, with the consent of Lenders, exercise any one or more of the
following rights and remedies, and any other remedies provided in any of the
Loan Documents, as Lenders in their sole discretion may deem necessary or
appropriate: (a) terminate Lenders' commitment to lend hereunder, (b) declare
the principal of, and all interest then accrued on, the Note and any other
liabilities hereunder to be forthwith due and payable, whereupon the same shall
forthwith become due and payable without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate or other notice of
any kind, all of which Borrower hereby expressly waives, anything contained
herein or in the Note to the contrary notwithstanding, (c) reduce any claim to
judgment, and/or (d) without notice of Event of Default or demand, pursue and
enforce any of Agent's or Lenders' rights and remedies under the Loan Documents,
or otherwise provided under or pursuant to any applicable law; provided,
however, that if any Event of Default specified in Section 7.01 (f) shall occur
with respect to Borrower, the principal of, and all interest on, the Notes and
other liabilities hereunder shall thereupon become due and payable concurrently
therewith, and Lenders' obligations to lend shall immediately terminate
hereunder, without any further action by Agent or any Lender and without
presentment, demand, protest, notice of default, notice of acceleration or of
intention to accelerate or other notice of any kind, all of which Borrower
hereby expressly waives.
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ARTICLE VIII
THE AGENT; PARTICIPATIONS
Section 8.01. Appointment and Authorization. Each Lender hereby
irrevocably appoints and authorizes Agent to take such action on its behalf and
to exercise such powers under the Loan Documents as are delegated to Agent by
the terms hereof and thereof, together with such powers as are reasonably
incidental thereto. With respect to its Commitment and the Advances made by it,
AmSouth Bank shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not Agent; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include
AmSouth Bank in its capacity as a Lender. Agent may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind
of business with, Borrower, any of Borrower's Affiliates and any Person which
may do business with Borrower or any of Borrower's Affiliates, all as if Agent
were not Agent hereunder and without any duty to account therefor to Lenders.
Section 8.02. Agent's Fees. Borrower shall pay to Agent for its own
account fees, if any, in the amounts and at the times agreed between them.
Section 8.03. Documents. Agent shall not be under a duty to examine or
pass upon the validity, effectiveness, enforceability, genuineness or value of
any of the Loan Documents or any other instrument or document furnished pursuant
thereto or in connection therewith, and Agent shall be entitled to assume that
the same are valid, effective, enforceable and genuine and what they purport to
be.
Section 8.04. Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving fifteen (15) Business Days' written notice thereof
to Lenders and Borrower. Upon any such resignation, Borrower shall have the
right to appoint a successor Agent from among the remaining Lenders. If no
successor Agent shall have been so appointed by Borrower and shall have accepted
such appointment within fifteen (15) Business Days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf of the
Borrower, appoint a successor Agent. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article VIII shall continue in effect
for its benefit in respect to any actions taken or omitted to be taken by it
while it was acting as Agent.
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Section 8.05. Responsibility of Agent. It is expressly understood and
agreed that the obligations of Agent under the Loan Documents are only those
expressly set forth in the Loan Documents and that Agent shall be entitled to
assume that no Default or Event of Default has occurred and is continuing,
unless Agent has actual knowledge of such fact or has received notice from a
Lender that such Lender considers that a Default or an Event of Default has
occurred and is continuing and specifying the nature thereof. Lenders recognize
and agree that Agent shall not be required to determine independently whether
the conditions described in Article IV have been satisfied and, in disbursing
funds to Borrower, may rely fully upon statements contained in the relevant
Request for Advance . Neither Agent nor any of its directors, officers or
employees shall be liable for any action taken or omitted to be taken by it
under or in connection with Loan Documents, except for its own gross negligence
or willful misconduct. Agent shall incur no liability under or in respect of any
of the Loan Documents by acting upon any notice, consent, certificate, warranty
or other paper or instrument believed by it to be genuine or authentic or to be
signed by the proper party or parties, or with respect to anything which it may
do or refrain from doing in the reasonable exercise of its judgment, or which
may seem to it to be necessary or desirable in the circumstances.
Agent shall not be responsible to Lenders for any recitals, statements,
representations or warranties contained in this Agreement, or in any certificate
or other document referred to or provided for in, or received by any Lender
under, this Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any document referred to or
provided for herein or for any failure by Borrower to perform any of its
obligations hereunder. Agent may, after consultation with Lenders, employ agents
and attorneys-in-fact and shall not be answerable, except as to money or
securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.
The relationship between Agent and each of the Lenders is only that of
agent and principal and has no fiduciary aspects, and Agent's duties hereunder
are acknowledged to be only ministerial and not involving the exercise of
discretion on its part. Nothing in this Agreement or elsewhere contained shall
be construed to impose on Agent any duties or responsibilities other than those
for which express provision is herein made. In performing its duties and
functions hereunder, Agent does not assume and shall not be deemed to have
assumed, and hereby expressly disclaims, any obligation or responsibility toward
or any relationship of agency or trust with or for Borrower. As to any matters
not expressly provided for by this Agreement (including, without limitation,
enforcement or collection of the Note), Agent shall not be required to exercise
any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully
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protected in acting or refraining from acting) upon the instructions of Lenders
and such instructions shall be binding upon all Lenders; provided, however, that
Agent shall not be required to take any action which exposes Agent to personal
liability or which is contrary to this Agreement or applicable law.
Section 8.06. Notices of Event of Default. In the event that Agent
shall have acquired actual knowledge of any Event of Default or of an event
which, with the giving of notice or the lapse of time, or both, would constitute
an Event of Default, Agent shall promptly give notice thereof to the other
Lenders. In the event that any Lender shall have acquired actual knowledge of
any Event of Default or of any event which, with the giving of notice or the
lapse of time, or both, would constitute an Event of Default, such Lender shall
promptly give notice thereof to the Agent and other Lenders.
Section 8.07. Sale or Assignment. Each participation shall constitute
an assignment, without recourse to AmSouth Bank, of any undivided interest in
the Loans, the Loan Documents, and any and all property of Borrower or proceeds
thereof that may be received in payment from the Borrower or applied to the
Loans. Nothing in this Agreement nor in any other agreement among Lenders and
Agent shall be construed to create a loan by any Lender to Agent or any other
Lender unless expressly set forth therein.
Section 8.08. Catch-All. Except for Loan repayments described herein,
no Lender shall have any interest in other payments received by the Agent from
Borrower.
Section 8.09. Corporate Power. Each Lender and the Agent represents and
warrants to all other Lenders and Agent that the making and performance of this
Agreement is within its power and has been duly authorized by all necessary
corporate and other action by it, that this Agreement is in compliance with all
applicable laws and regulations promulgated thereunder, and does not conflict
with any agreements by which it is bound, and that this Agreement has been duly
executed by it, and constitutes the legal, valid and binding obligation of it,
enforceable in accordance with its respective terms.
Section 8.10. Credit Analysis. Each Lender has conducted and will
conduct its own credit analysis, without reliance on Agent, and based upon such
documents and information as it has deemed appropriate, made and will make its
decisions called for hereunder, and will continue to be responsible for making
its own independent appraisal of the credit, financial condition, and all other
matters concerning Borrower. Each Lender represents and warrants that its
participation in the Loan and Loan Documents is an ordinary commercial lending
transaction and not a "sale" of a "security" under any federal or state
securities law, rule or regulation.
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Section 8.11. Administration of Loan. Only upon the unanimous consent
of each Lender may the Agent (i) agree to any modification of any of the terms
of the Credit Documents or any other agreement or instrument evidencing or
securing this Loan; (ii) waive any of such terms or give or withhold consents or
approvals to any actions or failure to act by the Borrower; (iii) reduce the
principal of or the interest rate or extend the stated maturity of the Loan;
(iv) agree upon any extension, modification, refinancing, refunding, assumption
or other restructuring of the Loan.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in accordance with generally
accepted accounting principles.
Section 9.02. Waiver. No failure to exercise, and no delay in
exercising, on the part of any Lender, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The rights
of Lenders hereunder and under the Loan Documents shall be in addition to all
other rights provided by law. No modification or waiver of any provision of this
Agreement, the Notes or any Loan Documents, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other action in the
same, similar or other instances without such notice or demand.
Section 9.03. Payment of Expenses. Borrower agrees, in the event that
Lenders prevail, to pay all reasonable costs and expenses of Lenders (including,
without limitation, the reasonable attorneys' fees of Lenders' legal counsel)
incurred by Lenders in connection with the preservation and enforcement of
Agent's and Lenders' rights under this Agreement and/or the Notes.
Section 9.04. Notices. Except for telephonic notices permitted herein,
any notices or other communications required or permitted to be given by this
Agreement or any other documents and instruments referred to herein must be (a)
given in writing and personally delivered or mailed by prepaid United States
mail, or (b) made by courier, overnight delivery service or telecopier or telex
delivered or transmitted, to the party to whom such notice of communication is
directed, to the address of such party as follows:
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(a) Borrower: EnergySouth, Inc.
Post Office Box 2607
Mobile, Alabama 36652
Attention: John S. Davis
Telecopier No.: (334) 476-1745
(b) Agent: AmSouth Bank, N.A.
Post Office Drawer 1628
Mobile, Alabama 36633-1628
Attention: Robert F. Diehl, Jr.
Telecopier No.: (334) 438-8377
(b) Lenders: AmSouth Bank, N.A.
Post Office Drawer 1628
Mobile, Alabama 36633-1625
Attention: Robert F. Diehl, Jr.
Telecopier No.: (334) 438-8377
Regions Bank
Post Office Drawer 2527
Mobile, Alabama 36622
Attention: Scott Patterson
Telecopier No.: (334) 690-1020
Whitney National Bank
Post Office Box 9789
Mobile, Alabama 36691
Attention: Kyle Pugh
Telecopier No.: (334) 665-1675
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South Alabama Bank
Post Office Box 3067
Mobile, Alabama 36652
Attention: Robbie Murray
Telecopier No.: (334) 433-5065
SouthTrust Bank, N.A.
Post Office Box 1508
Mobile, Alabama 36633
Attention: Sharon Johnson
Telecopier No.: (334) 431-9256
Commonwealth National Bank
Post Office Box B
Mobile, Alabama 36601
Attention: Ernestine Moore
Telecopier No.: (334) 476-5946
Any such notice or other communication shall be deemed to have been given on the
day it is received, provided, however, that any telephonic or other notice
received by Agent after 12:00 noon local time in Mobile, Alabama, on any day
from Borrower pursuant to Section 2.02(a) (with respect to a Request for
Advance) shall be deemed for the purposes of such Section to have been given by
Borrower on the next succeeding Business Day. Any party may change its address
for purposes of this Agreement by giving notice of such change to the other
parties pursuant to this Section 9.04.
Section 9.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the United States of America and the
State of Alabama.
Section 9.06. Confidentiality. Agent and each Lender agree to hold any
confidential information which they may receive from Borrower pursuant to this
Agreement in confidence, except for disclosure (a) to other Lenders, (b) to
legal counsel, accountants, and other professional advisors, (c) to regulatory
officials as required by law, rule or regulation, (d) as required by law or
legal process or in connection with any legal proceeding, or (e) as otherwise
permitted by the Loan Documents.
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Section 9.07. Nonliability of Lenders. The relationship between
Borrower and Lenders is, and shall at all times remain, solely that of borrower
and lenders, and Lenders and Agent neither undertake nor assume any
responsibility or duty to Borrower to review/ inspect, supervise, pass judgment
upon, or inform Borrower of any matter in connection with any phase of
Borrower's businesses, operations, or condition, financial or otherwise. There
is not and shall not be deemed to be a fiduciary relationship between Lenders
and Borrower. Borrower shall rely entirely upon its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment, or
information supplied to Borrower by any Lender or Agent in connection with any
such matter is for the protection of Lenders and Agent, and neither Borrower nor
any third party is entitled to rely thereon.
Section 9.08. No Joint Venture. Nothing herein contained or contained
in the other Loan Documents shall be deemed to create a partnership or joint
venture between Lenders and/or Agent on the one hand, and Borrower on the other
hand.
Section 9.09. Binding Effect. The Loan Documents shall be binding upon
and inure to the benefit of Borrower, Agent and Lenders and their respective
successors, assigns and legal representatives; provided, however, that (a)
Borrower may not, without the prior written consent of Lenders, assign any
rights, powers, duties or obligations thereunder, and (b) no Lender may, without
the prior written consent of the other Lenders and Borrower, assign any rights,
powers, duties or obligations thereunder.
Section 9.10. Entirety. The Loan Documents embody the entire agreement
between the parties and supersede all prior or contemporaneous agreements and
understandings, if any, relating to the subject matter hereof and thereof.
Section 9.11. Headings. Section headings are for convenience of
reference only and shall in no way affect the interpretation of this Agreement.
Section 9.12. No Third Party Beneficiary. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall this Agreement
be construed to make or render Agent or Lenders liable to any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower, or for debts or claims accruing to any such persons against
Borrower. Notwithstanding anything contained herein or in the Notes, or in any
other Loan Document, or any conduct or course of conduct by any or all of the
parties hereto, before or after signing, neither this Agreement nor any other
Loan Document shall be construed as creating any right, claim or cause of action
against Agent or Lenders, or any of their
23
<PAGE> 24
officers, directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrower, nor to any other person or entity other than Borrower.
Section 9.13. Multiple Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year, first above written.
BORROWER
ENERGYSOUTH, INC.
By: /s/ John S. Davis
John S. Davis, President and Chief
Executive Officer
By: /s/ Charles P. Huffman
Vice President, Chief Financial
Officer and Treasurer
AGENT
AmSOUTH BANK, N.A., as Agent for
Lenders pursuant to the terms hereof
By: /s/ Robert F. Diehl, Jr.
Title: Vice President
LENDERS
AmSOUTH BANK, N.A.
By: /s/ Robert F. Diehl Jr.
Title: Vice President
24
<PAGE> 25
REGIONS BANK
By: /s/ Scott S. Patterson
Title: Commercial Loan Officer
WHITNEY NATIONAL BANK
By: /s/ John M. Turner, Jr.
Title: State President
SOUTH ALABAMA BANK
By: /s/ Robert S. Murray
Title: Vice Pres.
SOUTHTRUST BANK OF ALABAMA, N.A.
By: /s/ Sharon Johnson
Title: Vice President
COMMONWEALTH NATIONAL BANK
By: /s/ Earnestine Moore
Title: Senior Vice Pres.
25
<PAGE> 26
EXHIBIT "A"
REVOLVING CREDIT NOTE
$20,000,000.00 September 30, 1999
FOR VALUE RECEIVED, the undersigned (the "Maker"), hereby
unconditionally promises to pay to the order of AmSOUTH BANK, N.A., a national
banking association, As Agent for the Lenders, ("the Agent")(the "Payee"), at
the offices of AmSouth Bank, N.A., as Agent (the "Agent"), at Mobile, Alabama,
or such other address given to Maker by Agent, the principal sum of TWENTY
MILLION and NO/100ths DOLLARS ($20,000,000.00), or so much thereof as may be
advanced hereunder and not repaid, together with interest on the unpaid
principal balance from day-to-day remaining, computed from the date of advance
until maturity at the rate and subject to the terms set forth below.
This Note has been executed and delivered pursuant to the terms of that
certain Revolving Credit Agreement (the "Revolving Credit Agreement"), between
Maker, Agent and AmSouth Bank, N.A., Regions Bank, Whitney National Bank, South
Alabama Bank, SouthTrust Bank, N.A., and Commonwealth National Bank, as Lenders,
dated of even date herewith, and the "Note" referred to therein. Each
capitalized term used herein shall, unless otherwise indicated, have the meaning
assigned to such term in the Revolving Credit Agreement.
Principal Payments and Prepayments.
(a) Payment of the Note. The unpaid principal amount of the Note, and
all accrued but unpaid interest thereon, shall be due and payable on the earlier
of'(i) the Commitment Termination Date, or (ii) the date on which the Note
becomes due and payable under the provisions of Section 7.02 of the Revolving
Credit Agreement.
(b) Optional Principal Prepayments on the Note. At any time and from
time to time Borrower may prepay without premium or penalty the principal of the
Note then outstanding, in whole or in part.
Payment of Interest on the Note. Interest upon the Note shall be
calculated at the end of each calendar month and shall be due and payable on the
first business day of the next calendar month and at the Commitment Termination
Date.
<PAGE> 27
Manner and Application of Payments. All payments and prepayments of
principal of, and interest on, the Note shall be made by Borrower to Agent
before 2:00 p.m., local time in Mobile, Alabama, in federal or other immediately
available funds at Agent's principal banking office in Mobile, Alabama. Any
payment or prepayment received by Agent after 2:00 p.m., local time in Mobile,
Alabama, shall be deemed to have been received by Agent on the next succeeding
Business Day. Should the principal of or interest on the Note, or any commitment
fee, become due and payable on a day other than a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day. Each payment
received by Agent hereunder for the account of Lenders shall be promptly
distributed by Agent to each Lender.
The Maker hereby waives demand, presentment, protest, notice of
protest, notice of dishonor, and all of the requirements necessary to hold it
liable for any of the Obligations (meaning thereby this Note and any and all
renewals and extensions thereof and any amounts due under the Revolving Credit
Agreement).
Neither any failure nor any delay on the part of Payee in exercising
any right, power or privilege under this Note shall operate as a waiver thereof,
nor shall a single or partial exercise thereof preclude any other or further
exercise or the exercise of any other right, power or privilege. No
modification, amendment, or waiver of any provision of this Note shall be
effective unless in writing and signed by a duly authorized officer of Payee,
and then the same shall be effective only in the specific instance and for the
purpose for which given.
This Note shall be governed and construed in accordance with the laws
of the State of Alabama.
IN WITNESS WHEREOF, EnergySouth, Inc. has caused this instrument to be
executed by its officer thereunto, duly authorized as of the day and date first
above written.
ENERGYSOUTH, INC.
By: /s/ John S. Davis
Title: President and Chief Executive
Officer
By: /s/ Charles P. Huffman
Title: Vice President, Chief Financial
Officer and Treasurer
<PAGE> 1
EXHIBIT 21
ENERGYSOUTH, INC.
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Percent of Voting State of
Subsidiary Securities Owned Incorporation
---------- ----------------- -------------
<S> <C>
Mobile Gas Service Corporation 100% Alabama
MGS Storage Services, Inc. 100% Alabama
EnergySouth Services, Inc. 100% Alabama
MGS Marketing Services, Inc. 100% Alabama
</TABLE>
PARTNERSHIPS IN WHICH REGISTRANT OWNS AN INTEREST
<TABLE>
<CAPTION>
Partnership Equity Ownership
----------- ----------------
<S> <C>
Bay Gas Storage Company, Ltd. 87.5%
Southern Gas Transmission Co. 51%
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-74613 on Form S-16 and No. 33-66474 on Form S-8 of EnergySouth, Inc. (the
"Company"), as successor to Mobile Gas Service Corporation, and No. 333-02271 on
Form S-3 of the Company, of our report dated October 29, 1999, appearing in this
Annual Report on Form 10-K of the Company for the year ended September 30, 1999.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 29, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE COMPANY FOR THE FISCAL YEAR ENDED SEPTEMBER
30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM
10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 125,913
<OTHER-PROPERTY-AND-INVEST> 3,763
<TOTAL-CURRENT-ASSETS> 36,555
<TOTAL-DEFERRED-CHARGES> 996
<OTHER-ASSETS> 6,408
<TOTAL-ASSETS> 173,635
<COMMON> 49
<CAPITAL-SURPLUS-PAID-IN> 18,563
<RETAINED-EARNINGS> 45,542
<TOTAL-COMMON-STOCKHOLDERS-EQ> 64,154
0
0
<LONG-TERM-DEBT-NET> 58,017
<SHORT-TERM-NOTES> 17,177
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 962
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 33,325
<TOT-CAPITALIZATION-AND-LIAB> 173,635
<GROSS-OPERATING-REVENUE> 68,060
<INCOME-TAX-EXPENSE> 5,003
<OTHER-OPERATING-EXPENSES> 49,072
<TOTAL-OPERATING-EXPENSES> 54,075
<OPERATING-INCOME-LOSS> 13,985
<OTHER-INCOME-NET> (545)<F3>
<INCOME-BEFORE-INTEREST-EXPEN> 13,440
<TOTAL-INTEREST-EXPENSE> 5,165
<NET-INCOME> 8,275
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,275
<COMMON-STOCK-DIVIDENDS> 4,444
<TOTAL-INTEREST-ON-BONDS> 4,453<F1>
<CASH-FLOW-OPERATIONS> 18,490
<EPS-BASIC> 1.70<F2>
<EPS-DILUTED> 1.68<F2>
<FN>
<F3>Includes cumulative effect of accounting changes, net of income taxes, in the
amount of ($349).
<F1>Total interest on bonds represents interest expense related to long-term debt
outstanding under First Mortgage Bonds and long-term secured notes.
<F2>Represents basic and diluted earnings per share computed in accordance with
SFAS 128. Amounts computed based on net income which includes cumulative
effect of accounting changes of ($.07) per share.
</FN>
</TABLE>
